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LIBRARY 
 
 UNIVERSITY OF CALIFORNIA. 
 
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OTfjr ^ta tr in its 
 
 Eiiati'on to JTvatJC 
 
 THE ENGLISH CITIZEN 
 
 HIS RIGHTS AND RESFONSIBIIITIES 
 
THE STATE 
 
 IN ITS 
 
 RELATION TO TRADE 
 
 BY 
 
 T H. FARRER 
 
 WITH SUPPLEMENTARY CHAPTER BY 
 
 SIR ROBERT GIFFEN, K.C.B., F.R.S. 
 
 EonDon 
 MACMILLAN AND CO., Limited 
 
 NEW YORK : THE MACMILLAN COMPANY 
 1902 
 
 Aii rhhts reserved 
 

 RiciiARP Cl*y and SiiNP, Limited. 
 
 I,OKD<jN' A>.D BUNGAY. 
 
 ■IVS3,v,3 
 
PREFACE 
 
 When first asked to write on the Relations of the 
 State to Trade, I saw with pleasm'e that Mr. Stanley 
 Jevons was to write on the Relations of the State to 
 Labour, and hoped that we might consult with one 
 another on the line to be taken and on the distinc- 
 tion to be made between these two kindred subjects. 
 For some time circumstances" prevented me from 
 writing, and when I was able to do so, his treatise 
 had appeared, and he, alas I was prematurely lost to 
 us. In the following pages I have tried to avoid 
 the ground v.hieh he has occupied • but find the 
 tendency of my own opinions on one point slightly 
 diverging from his. It is not difficult to account for 
 this. He knew much more of local government and 
 of local wants than I do ; I perhaps have seen more 
 of the ditliculties and weakness of central government 
 than he had ; the general impression left on my 
 mind is therefore rather more adverse to central state 
 interference than his was. In thus referring to 
 
 117469 
 
vi PREFACE 
 
 .Mr. Jevons T can onl}'' add to tlio many public expres- 
 sions of regret for liis loss m}^ own triljute of sincere 
 admiration for one to whom sve owed so much and 
 from whom we expected so much more ; one who 
 as a statistician had the rare faculty of using figures 
 with intelligence and discrimination ; one who as an 
 economist treated society not as a machine, subject 
 to dead mechanical rules, but as a living, growing, 
 changing organism ; one, above all, who in what- 
 ever he did was a sincere lover of truth and of 
 his fellow-men. 
 
TABLE OF CONTENTS 
 
 PAOE 
 
 SUPPLP]MP]NTARY CHAPTER. By Sir Rorert 
 
 GiFFEN, K.C.B., F.R.S 1 
 
 CHAPTER I 
 
 WHAT IS THE MEANING OF THE STATE AND OF TRADE ? . . 28 
 
 Afean iny of Trade — Meaning of the State. 
 
 \ 
 
 CHAPTER II 
 
 THE ACTION OF THE STATE IS EFFECTED THROUGH THE LEGIS- 
 LATURE ; THE COURTS OF LAW ; AND THE EXECUTIVE . 33 
 
 CHAPTER III 
 
 THE STATE PROTECTS LIFE AND PROPERTY ; PROVIDES MEANS 
 FOR THE SETTLEMENT OF DISPUTES ; PROMOTES EDUCA- 
 TION ; AND FURNISHES INFORMATION 37 
 
 CHAPTER IV 
 
 THE STATE ENFORCES, EXPLAINS, AND ADDS TO CONTRACTS . 40 
 
 Freedom of Contract — Contracts Enforced by the State — 
 Contracts Explained and Siqtplemented hy the State. 
 
COXTKXTS 
 
 CHAPTER V 
 
 PAOK 
 MF.RCANTir.E LAW 4S 
 
 Debtor and Creditor —Partner-sldp— Joint -Stocl- Com- 
 panies — Principal and Agent— Shippiwj — Bills of 
 Exchange — Contracts with Carriers — Murine Insurance 
 — Formation of this Law — Operation of this Law. 
 
 CHAPTER VI 
 
 GENERAL LIMITATION'S BY THE STATE OF CONTRACT OBLICA- 
 TIONS 
 
 Personal Disahilities — Limited Liabiliti/ — Statute of 
 Frauds — Statute of Limitations — Bankrujitcy — Bills 
 of Sale. 
 
 CHAPTER VII 
 
 THE STATE SETTLES THE TERMS IN WHICH CONTRACTS SHALL 
 BE MADE; AND DETERMINES, STAMPS, AND ISSUES THE 
 MEDIUM OF EXCHANCE 65 
 
 Weights and Measures— Gold and Silrer Monetj — Bi- 
 mttalllsm — Paper JSloncy— Demand for Cnrreticy. 
 
 CHAPTER VIII 
 
 ACTION OF THE STATE WITH RESFECT TO MONOPOLIES AND 
 
 PRICE SI 
 
 CHAPTER IX 
 
 PATENTS AND COPYRTCHT .ST 
 
CON'J'IONT.S 
 
 CHAPTER X 
 
 PAGE 
 ACTION 01'' TIIK STATE IN THE MATTER OF CERTAIN UNDER- 
 
 TAKINliS WHICH ARE TOTAL OR PARTIAL JIONOPOLIES . 9.3 
 
 Genertd Character offhe.se UiKhr/akiiiijs — Mode of Dtal- 
 iii'j luith them — Harbours and Natural Navigatioun — 
 Caiialx — Dorhs — Li;ihthoHses — Roads —Bridye.n and 
 Fe.rrits — Railiruyn — Tramways — Gas-works — Eltctrir, 
 Li'jhlivii — Wat(:r Siqypli/ — Pod-Office and Tdtgraphs 
 — Conrlasioiis — Other Cants of Cocerniatnt Siqtphj. 
 
 CHAPTER XI 
 
 POST-OFFICE 125 
 
 History — Carriage of Letters —Parcels Post — Telegraphs 
 — Telephones — Post-Office Savings Banks — Money 
 Orders and Postal Orders — Insurance and Annuities — 
 Revenue and Expenditure — General Observations. 
 
 CHAPTER XII 
 
 RAILWAYS 136 
 
 Growth of Railways — Legislation — Limitation of Rates 
 and Fares- Limitation of Profits — Government Pur- 
 chase — Cheap Trains— Carriage of Mails — Forward- 
 ing Traffic — Joint Committee of 1872 — Competition. 
 
 CHAPTER XIII 
 
 MERCHANT SHIPPING 147 
 
 Measurement and Registry — Officers and Crew — Safety 
 — Lighthouses, Harbours, and Pile's — Wrecks and 
 
 Casualties— Maritime Law — General Observations. 
 
CONTENTS 
 
 CHAPTER XIV 
 
 PAGE 
 ACTION OF THE STATK WITH RESPECT TO FOREIGN TRADE; 
 ABANDONMENT OF I'liOTECTION AND DISCRIMINATIVE 
 DUTIES lo'J 
 
 CHAPTER XV 
 
 INTERFERENCE OF THE STATE IN THE FORM OF RESTRIC- 
 TIONS ON SPECIAL TRADES 1G4 
 
 General Priiiripfes — Freedom the General Ride, hut with 
 many Exceptions — Consequences of Restriction. 
 
 CHAPTER XVI 
 
 TESTING, BRANDING, TRADE-MARKS, AND ADULTERATION . . 1/2 
 
 Gun-harrels — Chain Cables and Anchors — Hall-marldng 
 of Gold and Silver Plate — Herrinij-Jirand — Coi'k 
 Butler Market — Trade- Marks — Adulteration Acts. 
 
 CHAPTER XVII 
 
 INTERFERENCE OF THE STATE WITH SPECIAL TRADES IN 
 
 ORDER TO SECURE HEALTH AND SAFETY ISl 
 
 Ships— Railways — Tramways — Hackney Carriages — 
 Unwholesome Food — Offensive Trades — Gas — Electric 
 Lighting — Chemical Works — Smoke — Explosives — 
 Buildings — Lodging- Houses — Bakehouses — Slaughter- 
 houses — Puhlichouses — Theatres — Cattle — General 
 Observations. 
 
CONTENTS 
 
 CHAPTER XVIII 
 
 PAGE 
 TAXATION OF TRADE BY TlIK KTATK 193 
 
 CHAPTER XIX 
 
 THE STATE AND TUADE IN WAR 197 
 
 Restricfionn on Exports and Imports — Foreiyii. Eii/istmeut 
 Act — Blockade, Contraband of War, and Maritime 
 Capture — Trade and Conquest. 
 
 CHAPTER XX 
 
 CONCLUDING SUMMARY 207 
 
THE 
 
 STATE IN ITS RELATION 
 TO TRADE 
 
 SUPPLEMENTARY CHAPTER 
 
 In writing a chapter which is to serve in part as 
 supplement, and in part as preface, to a new edition 
 of Lord Farrer's book on " The State in its Relation to 
 Trade," I desire first to call attention to the practical 
 character of the book itself. It is not the book of the 
 mere student, though it is the result of much study. 
 To a large extent it is a statement of the principles and 
 reflections employed by Lord Farrer for his own guidance 
 in the department of government — the Board of Trade — • 
 with which he was connected for thirty years or more ; 
 for a short time as one of the assistant secretaries, and 
 afterwards as permanent secretary, having all the threads 
 of the business in his hands. In other words, as the 
 permanent head of the chief department of the govern- 
 ment having to do with trade matters. Lord Farrer has 
 given the public in this volume a statement of the 
 necessities and occasions which force or induce the 
 government to deal with trade ; the reasons which 
 
2 THE STATE IN ITS RELATION TO TRADE 
 
 determine its action and the objects to be accomplished ; 
 the limitations and restrictions of its activity ; and the 
 eflfects of its interference, as far as they can be ascer- 
 tained. In doing so he has for the most part been 
 giving an account of departmental experience; of 
 business which he has himself handled, and where his 
 judgment and experience, in his own time, largely 
 _guided the government. Even in matters not within 
 his own department, it may be added, he was constantly 
 resorted to by the government for information and 
 advice. There is little in this book, accordingly, where 
 he had not personal experience, the exceptions being 
 mainly the business of departments like the Post Office, 
 the Customs, or the Inland Revenue, where the govern- 
 ment administers a business and does not merely super- 
 vise public or private traders, or control their action. 
 
 The reader will understand better, perhaps, how 
 much of Lord Farrer's personal experience in official 
 life is in the book if I mention some of the more 
 important subjects dealt with in it and show the gro\vth 
 of the government's connection with them under his 
 direction. One of these subjects is maritime law and 
 merchant shipping, which was his own special province 
 at the Board of Trade as assistant secretary, before he 
 became permanent secretary, and which he always took 
 a personal interest in. His experience went back to 
 1849, and included the repeal of the Navigation Laws, 
 one of the great free-trade measures about the middle of 
 last century. Next it fell to his hand to assist in the 
 legislation for emigrant ships and for sea-going passenger 
 ships generally in 1855, as well as other merchant 
 shipping legislation ; while in later life what is kno^vn 
 as the Plimsoll legislation, to protect life and property 
 
SUPPLEMENTARY CHAPTER 3 
 
 at sea, occupied much of his time. Other topics, such 
 as inquiries into wrecks, pilotage, the rule of the road at 
 sea, the levying and administration of light dues, marine 
 insurance, and so on, all came before him, so that the 
 growth of the marine branch of the Board of Trade, 
 and the development of almost the entire code of 
 shipping legislation as it now stands, belonged almost 
 entirely to his time. 
 
 Another branch of business which occupied him 
 greatly as permanent secretary was the arrangement of 
 government action regarding the great railway monopoly.. 
 Though not a member of the Joint Committee (see p. 141) 
 which reported in 1872 and laid down the main lines 
 for regulating the monopoly, such as the compulsion 
 upon railway companies to give through rates and fares 
 from any station of one system to any station of other 
 systems, Lord Farrer was practically the adviser of the 
 Committee behind the scenes, and if he did not write 
 the report he had no small share in its preparation and 
 final revisal. As permanent secretary, of course he 
 directed the daily action of the Board of Trade in 
 exercising the control over the railways. Later on, 
 tramway legislation, by a natural connection, became 
 part of the business of the department, though the 
 Light Railway belongs to a somewhat later date, and 
 had not come into existence when the present book was 
 written. 
 
 Another large branch of business with which the 
 Board of Trade in Lord Farrer's time was occupied was 
 that of copyright, patents, and trade marks, the Patent 
 Office being placed under the Board of Trade about 
 1876. These subjects, in fact, interested him greatly. 
 Why there should be copyright and patents which are 
 
 B 2 
 
4 THE STATE IN ITS RELATION TO TRADE 
 
 to some extent of a monopoly character ; what were the 
 public advantages to be promoted ; and how the public 
 should be protected against some of the incidents of 
 monopoly — were topics which seemed to have a peculiar 
 fascination for him. He offended authors and inventors, 
 no doubt. Some of these gentlemen held ideas as to 
 the sacred nature of their rights, which were almost un- 
 intelligible to his legal mind, while his want of sympathy 
 with the purely literary genius was a hindrance to his 
 success in dealing with these subjects. But of the 
 extent of his influence on legislation, beneficent or 
 otherwise, there can be no question. In a different 
 field, that of international regulation of copyright, 
 patents, and trade marks, his services were very great 
 indeed, the complexities and difficulties of the subject 
 being in their nature overwhelming, with which only a 
 strong mind, equal to any quantity of woi-k, could 
 
 _ grapple. 
 
 To pass to quite a different subject, one of the topics 
 with which he was last concerned at the Board of Trade 
 
 ^was that of bankruptcy, one of the first dealt with in 
 the present book. The legislation outlined in the book 
 was, in fact, carried out in 1883 shortly after the book 
 was written, under Mr. Chamberlain's auspices in 
 Parliament. The Bankruptcy Act of 1883 with its 
 system of administration seems to have become per- 
 manent, although for nearly a century before bankruptcy 
 legislation was changed every few years, and there were 
 endless complaints. 
 
 These were all important subjects occupying a great 
 deal of time and attention ; but there were man)^ others, 
 important enough in themselves, with which Lord Farrer 
 was officially connected. Legislation, for instance, as to 
 
SUPPLEMENTARY CHAPTER 6 
 
 the gas monopoly and administration of certain matters 
 of government control over it ; the electric lighting 
 monopoly ; weights and measures ; negotiation of Com- 
 mercial Treaties ; the defence of free-trade policy ; and 
 many other questions were part of the daily routine of 
 the Board of Trade. In some Lord Farrer took a very 
 special interest indeed, of which his well-known book on 
 Free Trade and Fair Trade is one of the proofs. The 
 Board of Trade did not cease growing when he left it, 
 and large branches were afterwards added to it, 
 including a Labour Department and the administration 
 of an act for conciliating labour disputes ; a Light 
 Railway Department ; a Fishery Department ; a Com- 
 mercial Intelligence Department ; and other subjects 
 which it is difficult to remember. But the business 
 is still substantially what Lord Farrer left it, and its 
 subsequent growth was largely due to the impulse which 
 he gave, one new branch after another being easily 
 added because the general principles of action in like 
 matters had been laid doAvn. 
 
 The exceptional value of the present book for the 
 student and for public men is thus apparent. The 
 whole field of legislation and administration in matters 
 of trade is brought under review, and the relation of 
 one subject to another exhibited. The discussion of the 
 few matters with which Lord Farrer was not depart- 
 mentally concerned, such as mining and factory 
 legislation, the currency, post-office administration and 
 the like, show the impress of his mind and his 
 familiarity with the subjects themselves, due in part 
 to the frequency with which he was taken into consulta- 
 tion by the heads of the Treasury and other depart- 
 ments of the Government. One of the topics in the 
 
6 THE STATE IN IT8 RELATION TO TRADE 
 
 book, currency, tliough not a Board of Trade matter, 
 occupied Lord Farrer a great deal for some years after 
 he left official life, and in his official career he had often 
 been taken into council respecting it. 
 
 Following the arrangement of the book, I propose 
 next to notice the more important statements which, 
 either from the lapse of time or changes in legislation 
 since the book was written, require correction or 
 supplement. 
 
 Magnitude of Emjlish Trade. — The statements in 
 Chapter I. as to the magnitude of English Trade appear 
 to require some observation of this kind. The internal 
 trade of the country, it will be observed, is spoken of as 
 if it were the internal trade of the United Kingdom 
 alone, which would hardly now be thought a correct 
 procedure since the notion of the British Empire as a 
 Unity has become popularised. Language to indicate 
 that when we speak of the internal trade of the United 
 Kingdom we are only speaking of a part of the internal 
 trade of the country or empire to which British subjects 
 belong, would now be expected of any writer, even 
 if he thought with Lord Farrer {see pp. 205-6) that 
 the responsibilities of the United Kingdom have been 
 unwisely increased by territoi'ial expansion. Of course, 
 if the internal trade of the whole British Empire is to 
 be referred to, the remarks in Chapter I. as to the 
 importance of this trade are greatly strengthened. 
 
 The prefatory remark on our share of international 
 trade that we, that is, the people of the United 
 Kingdom, are the greatest of traders with other nations, 
 is as true as it was when Lord Farrer wrote, and his 
 
SUPPLEMENTARY CHAPTER 7 
 
 specific statements in support are really under the mark. 
 He puts the exports and imports of the United 
 Kingdom at nearly one-fourth of the foreign trade of 
 the world, but the proportion must be higher. Imports 
 and exports, as usually spoken of in our statistical 
 returns, may be placed at nearly £850,000,000 annually ; 
 but to this amount should be added the transhipment 
 trade amounting to .£20,000,000 more, and the imports 
 and exports of gold and silver exceeding annually very 
 often the sum of £100,000,000, so that, all told, the 
 foreign trade of the United Kingdom is hardly less 
 than £1,000,000,000 annually, which is certainly quite a 
 fourth of the imports and exports of the different 
 countries of the world added together. The observation 
 must be made, however, that if the British Empire is to 
 be considered as a unit, the effect of doing so will be to 
 diminish the aggregate of the world's international 
 trade as usually reckoned. What is now reckoned 
 international, in consequence of the different portions 
 of the British Empire being taken as separate states or 
 countries, would become internal, and so the aggregate 
 of external trade would be less. The British share of 
 this aggregate would however be more even than a 
 fourth, as the British Empire is the princi}5al dealer 
 with the other nations of the world both as buyer and 
 seller. 
 
 Lord Farrer's statement in the same connection (p. 30) 
 that we are the greatest capitalists and the largest 
 lenders to foreign nations still remains true, and his 
 specific assertion that our investments abroad are not 
 much less than £2,000,000,000 is probably under the 
 mark. A year ago, in reply to a question, the 
 Chancellor of the Exchequer stated in the House of 
 
8 THE STATE IN ITS RELATION TO TRADE 
 
 Commons that the income from our foreign investments 
 actually known to pay income tax was £90,000,000, 
 which would represent a much larger capital than 
 £2,000,000,000, while it does not include a considerable 
 income earned in partnership business, and which pays 
 income tax in some other way than as foreign income. 
 The statement, howevei', would require some qualifica- 
 tion when the colonies are reckoned as one with the 
 United Kingdom, so that our investments in the 
 colonies would not be i-eckoned as "foreign." The 
 investments of the people of the United Kingdom 
 beyond the seas would now be the more correct 
 expression. It would also be fair to recognise that 
 if investments in the colonies are no longer to be 
 regarded as foreign investments by the people of the 
 United Kingdom, then other countries such as Germany, 
 France, Belgium and Holland are equally with England 
 large investors abroad. As the British Empire is 
 foreign to them, and they invest largely in our colonies, 
 e.g. in South African gold mines, their " foi'eign " 
 investments may bulk largely indeed in comparison 
 even with our own when the latter are strictly con- 
 sidered and colonial investments are omitted. There is 
 no doubt also that of late years foreign countries liave 
 been lai'gely increasing their investments abroad, and 
 England is not so exclusively the world's capitalist that 
 it was. 
 
 Lord Earrer's next remark (p. 30), that we are the 
 greatest of brokers, also remains true, I believe ; nor has 
 the proportion of the whole business diminished of late 
 years, although in certain directions our de2wt or entrepot 
 business has diminished, owing to the facilities for direct 
 shipment to the Continent from distant places which 
 
SUPPLEMENTARY CHAPTER 9 
 
 have been increased by the opening of the Suez Canal, 
 and the enormous growth of steam shipping. These 
 changes have hardly affected the position of London 
 as the banking centre and clearing house of the world, 
 although a certain part of our entrepot business has been 
 checked. 
 
 Lord Farrer's statements (pp. 30 and 31) as to the 
 importance of our shipping — that it is equal to more 
 than one-half of the shipping of the whole world — that 
 the value of our ships is ,£100,000,000; that the value 
 of our cargoes afloat at one time is much larger, and 
 that we carry £1,000,000,000 in the course of a year; 
 and that our ocean trade is two-thii'ds or more of the 
 ocean trade of the whole world — also remain true at 
 the present time, or are even farther under the mark 
 than they were. Since Lord Farrer wrote, the shipping 
 of the United Kingdom and the British Empire have 
 both increased enormously, while some of our rivals, 
 such as France and the United States, have remained 
 all but stationary as far as the ocean-going shipping of 
 the world is concerned. The value of our ships at a 
 moderate calculation, allowing for the great improve- 
 ments in shipbuilding which have lowered the price 
 along with the increase in tonnage, must now far exceed 
 £100,000,000. The gross income and net profits yielded 
 can hardly, however, have increased in proportion. In 
 the last twenty years, moreover, one important com- 
 petitor for the carrying trade of the world, Germany, 
 has come to the front. Although the shipping of 
 Germany, one and a half million tons, is still not more 
 than a sixth or a seventh of that of the British Empii-e, 
 the rapid and sustained increase of German shipping, 
 connected as it is with the rapid growth of German 
 
10 THE STATE IN ITS RELATION TO TRADE 
 
 trade, already affects in some degree the feeling with 
 which the relative international position must be re- 
 garded, as compared with what existed when Lord 
 Farrer wrote his book. The threat of American com- 
 petition, which has just been so seriously manifested in 
 the shape of a North Atlantic " combine " absorbing in 
 an American ring large numbers of our best steamers, 
 and which is also shown in proposals before Congress to 
 subsidise American vessels, is even far more serious than 
 any action of Germany. 
 
 A Mmistri/ of Commerce. — The next Chapters — II., 
 III., IV., V. and VI. — appear to call for little remark. 
 They describe generally the attitude of the state in 
 relation mainly to contracts of different kinds, and the 
 functions of the state as lawgiver and administrator in 
 relation to such contracts, Under these heads the 
 substantial action of the state can hardly undergo 
 much change in ordinary times, much of the utility of 
 law in such matters depending on the absence of change. 
 I would notice, however, (p. 36) Lord Farrer's wish that 
 the department of government performing the functions 
 of a Ministry of Commerce may still be called the Board 
 of Trade. Occasional calls for a Ministry of Commerce 
 have been heard since he wrote, and have continued 
 futile, as indeed they are likely to be, if regard is had 
 to things and not to names. It will have been gathered 
 from the enumeration already made how extensive the 
 functions of the Board of Trade really are. The idea 
 seems to be in some quarters that a Ministry of Com- 
 merce ought to take an active part in fostering our 
 trade abroad ; helping our merchants to obtain contracts 
 and concessions from half civilised foreign governments, 
 
SUPPLEMENTARY CHAPTER 11 
 
 such as Turkey and China, as other foreign governments 
 help their merchants ; obtaining samples and informa- 
 tion for merchants and manufacturers both ; and so on. 
 Lately at the Board of Trade a Commercial Intelligence 
 Department has been added, partly to give effect to this 
 idea which appears to go beyond anything which Lord 
 Farrer thought within the scope of a government's 
 functions in relation to trade. Whether government 
 can really help private traders and the public in matters 
 of trade beyond collecting and publishing the best 
 information may well be doubted. The innovation, it is 
 certain, would not have been approved by Lord Farrer. 
 
 Joint-Stock Companies. — Lord Farrer's observations 
 on limited liability (Chapter VI.) would also require to 
 be supplemented a little at the present time, in conse- 
 quence of the great extension of joint stock enterprise 
 since he wrote. The principles and object of such 
 legislation remain the same, but joint stock companies 
 are much more to the nation than they were. He 
 quotes from a parliamentary i-eturn of 1877 as showing 
 the capital of companies registered under the Joint 
 Stock Companies Acts to exceed £300,000,000 (p. 57) 
 exclusive of parliamentary companies, such as railways 
 and companies under charters. At the present time 
 the capital of similar joint stock companies is many 
 times the figures stated. In the last few years the 
 nominal share capital of companies registered an^iually 
 has ranged from one hundred to over three hundred 
 millions sterling, while the paid up capital of all 
 registered companies " believed to be carr5ring on 
 business at the latest date " (1900) is no less than 
 £1,622,000,000, having increased threefold in the last 
 
12 THE STATE IN ITS RELATION TO TRADE 
 
 fifteen years. Lord Farrer regards the development of 
 joint stock enterprise as an illustration of the mischief 
 that may have been done in former times by an impolitic 
 restriction ; but although the extreme restrictions of 
 former times may have been unwise, it is doubtful 
 whether joint stock company law has yet reached the 
 final form in which at the same time the necessary 
 freedom is given, and adequate safeguards for the public 
 are retained. 
 
 Bankruptcy. — With regard to Bankruptcy (pp. 59-63) 
 I have already noticed incidentally the share of Lord 
 Farrer in the construction of the Bankruptcy Act of 
 1883, which carries out the principles here laid down as 
 to the object of bankruptcy legislation. The paragraph 
 on p. 62 describing what has been proposed in recent 
 attempts at bankruptcy legislation may be accepted as a 
 description of the Bankruptcy Act of 1883 itself. If 
 any point is omitted, I think, it is the full liberty 
 given to creditors to administer the estates of insolvent 
 debtors if they wish, assisted by the official agency 
 when they like, but their liberty being in no way cur- 
 tailed. It is the sincerity with Avhich this provision 
 has been carried out that has largely secured the success 
 of the Act, which possesses a final character, neither 
 leaning to officialism on one side, nor on the other side 
 to the anarchy which existed in former times when 
 there was no official agency. An Act was passed in 1887 
 confirming and extending the liberty of creditors by 
 giving power to enter into " Deeds of arrangement," 
 but excepting a slight modification in 1890 of a clause 
 permitting arrangements in the Act of 1883 no 
 farther change has been made. A Companies Winding- 
 
SUPPLEMENTARY CHAPTER 13 
 
 up Act was passed in 1890 assimilating the procedure 
 in winding-up insolvent joint stock companies to the 
 ordinary procedure in bankruptcy and placing the corre- 
 sponding official agency with the Board of Trade. The 
 amount of liabilities dealt with under these various 
 acts amounted in 1900 to about £15,000,000, viz., or- 
 dinary bankruptcy £6,500,000 ; deeds of arrangement 
 £4,250,000; deeds of assignment £2,500,000; and 
 orders for winding-up companies £1,500,000. The 
 amount is not a lai'ge percentage of the annual turn- 
 over of the gigantic business of the country, or of its 
 accumulated wealth, but indicates nevertheless a disease 
 of some magnitude justifying the action of the state. 
 
 Weights and Measures and Ctirreney. — The long 
 Chapter VII. on weights and measures, coinage, 
 currency, and paper money, appears substantially to 
 require no change to adapt it to the present time. 
 There has been no small controversy about currency 
 since the book was written, and particularly about 
 bimetallism, to which a few pages are devoted ; and in 
 tills controversy Lord Farrer had a considerable share. 
 He was one of the members of the Gold and Silver 
 Commission which sat in 1887 to extinguish bimetallism, 
 and of the Departmental Committee on Indian Currency 
 which sat in 1892 and sanctioned the stoppage of the 
 silver coinage in India with a view to establishing the 
 present system of gold rupee money at the rate of 
 Is. 4c?. per rupee. He gave evidence likewise before Sir 
 Henry Fowler's Committee in 1899 which confirmed the 
 latter system. But the points raised in these contro- 
 versies hardly touched the elementary principles laid 
 down in this book for the guidance of the state. 
 
14 THE STATE IN ITS RELATION TO TRADE 
 
 On one point I may be allowed to say that Lord 
 Farrer's later teaching and practice were hardly in 
 accordance with the doctrine of this book. He lays it 
 down (p. 76) that the sole function of the government 
 in the matter of the gold standard "is to ascertain the 
 quality and weight of the gold, and to give it a stamp 
 denoting that quality and weight." In dealing with 
 the money ©f India, however, it appears to some of us, 
 Lord Farrer gave his sanction to government action 
 going far beyond this account of their functions in 
 relation to standard money. The coinage of the former 
 standard money of India (silver) was absolutely stopped 
 for some years, in order to raise its value artificially, 
 before the transition to a gold standard Avas made, 
 while in the new arrangements there have been 
 practically restrictions upon the issue of silver coins, 
 now called token coins, but which still remain the 
 principal coins in use in India, differing in spirit from, 
 even if technically the same as, the regulations for 
 issuing token coins in England. It would be wrong, 
 however, to introduce a controversial element in a sup- 
 plementary chapter, and the point is merely noticed in 
 passing as it is impossible to overlook altogether the 
 controversies which have been carried on since the book 
 was written, and Lord Farrer's share in them. It ought 
 to be added that Lord Farrer very properly was first 
 and foremost a servant of the state, concerned to have 
 the government carried on, and would not have seriously 
 regarded a charge of theoretical inconsistency when 
 practical measures to remedy serious evils, such as were 
 believed to exist in Indian currency, were in question. 
 
 One or two minor changes which have occurred since 
 Lord Farrer wrote, in connection with the subjects of 
 
SUPPLEMENTARY CHAPTER 15 
 
 this chapter, are not without interest. To the Hst of 
 " standard " weights and measures (p. 69) there have since 
 been added electric standards, and a " Board of Trade 
 unit " has been estabHshed as the unit of electricity which 
 electric companies sell to their customers. By a recent Act 
 also a step towards introducing metric standards which 
 Lord Farrer disapproves (p. 70), viz. the legalising of 
 such standards in contracts, if people desire it, has actu- 
 ally been taken, and metric standards have accordingly 
 been added to the legal list. The reference to the 
 actual price of silver (p. 73) has now become archaic. 
 The price when he wrote was 52d. per oz., which he 
 notices very properly as showing a wide difference from 
 the mint price of 66c?. per oz. at which silver token 
 coins are issued. The great fall of silver has, however, 
 taken place since he wrote, and at the present time of 
 writing (April 1902) silver is less than half what it was 
 then, being just under 24c?. per oz. This discrepancy 
 between the actual and coining price far exceeds 
 anything contemplated by the founders of our present 
 coinage system (see Lord Liverpool's Treatise on the 
 Coins of the Realm), and business men and students 
 have still grave doubts whether the token coinage is 
 quite safe from forgery with so great a discrepancy. 
 
 Patents and Copi/7'ighf. — The next two chapters 
 (VIII. and IX.) are quite general, and do not require 
 to be supplemented by the record of any " happenings " 
 since Lord Farrer wrote. Neither patent nor copyright 
 law gives satisfaction, and amendments are still called for. 
 In patent law especially there appears to be a defect in 
 the international arrangements, as far as this country 
 is concerned, in respect of the protection given to 
 
16 THE STATE IN ITS RELATION TO TRADE 
 
 foreign patentees, as they may work their patents 
 abx'oad and send the products freely to this country 
 while not working them in this country at all. This 
 system, it is maintained, operates as an absolute burden 
 on home industry ; and is especially grievous when the 
 patent is one which home inventors could themselves 
 have brought out with advantage to home capital and 
 labour if they had not been anticipated by a foreigner to 
 whom we give protection without effectively insisting 
 on the home development and working of his invention. 
 
 The Regulation of Monopolies. — The next chapter (X.) 
 brings us to the business which was to a large extent 
 the main occupation of Lord Farrer's official career, viz., 
 the regulation of total or partial monopolies — such as 
 railways, gas and water monopolies, docks and the hke. 
 The exposition of the nature and principles of state 
 action, the differences between English and foreign 
 practice, and the tendency then developing towards a 
 larger degree of state interference or even to direct 
 government action is still a complete exposition to all 
 intents and purposes. The tendency to an increase of 
 state interference or of direct government action has 
 since become moi^e marked, municipalities especially 
 having taken more largely to the management of their 
 own water, gas, electric light, tramways, and the hke, 
 and having extended their sphere of action in some 
 cases to the construction of houses. 
 
 With regard to the tendency of docks to change from 
 private to public management it may be interesting to 
 note that not only has the tendency developed farther 
 since Lord Farrer wrote, but the oldest established 
 private docks of all, those of London, are now the 
 
SUPPLEMENTARY CHAPTER 17 
 
 subject of an inquiry by a Royal Commission, appointed 
 in consequence of dissatisfaction witli the existing state 
 of things. 
 
 With regard to Hghthouses I hardly think Lord 
 Farrer's account of the principles of their management 
 would now be accepted as complete. "It is admitted 
 on all hands," he says, " that they must be in the hands 
 of a central authority, and ought not to be a matter of 
 profit to private persons. Whether they should be paid 
 for in the shape of tolls on ships, or by the public ex- 
 chequer, does not seem to be a question raising any 
 important issue of economical principle." This last 
 expression of opinion could hardly be maintained now. 
 The United States Government some years ago declared 
 itself strongly against the levy of tolls for maintaining 
 lighthouses, and went so far as to difierentiate against 
 ships coming to the United States from countries where 
 such dues were levied on American ships. The countries 
 which levy such tolls are also few in number, the United 
 Kingdom being the only important one. The objection 
 to them economically was stated by Mr. Bagehot many 
 years ago, to the eflfect that although such charges are 
 no doubt paid in the end by the consumers, yet they are 
 harassing and inconvenient meanwhile to traders, and 
 belong to a class of imposts which offend against the 
 canons of simplicity and equity in taxation. 
 
 The figures as to roads, tramways, electric lighting 
 and other undertakings in this chapter have all been 
 greatly increased since Lord Farrer wrote; but it 
 appears unnecessary to give any later figure, especially 
 as Lord Farrer himself has not followed any uniform 
 practice in doing so, there being no corresponding in- 
 formation as to gas, or water, or electric lighting, which 
 
 c 
 
18 THE STATE IN ITS RELATION TO TRADE 
 
 are of no less importance. As I have noticed already, 
 the Light Railway had not come into existence in Lord 
 Farrer's time, although it is already a serious competitor 
 with the Tramway, partly in consequence of an over- 
 sight which illustrates the intrinsic difficulties of 
 Government interference with trade. Tramways, very 
 properly, on the supposition that local authorities should 
 be allowed to manage their own business, can only be 
 made with the consent of the municipal authority of the 
 district. It was not foreseen, however, that tramways 
 might be required between adjacent municipal districts 
 not under the same authority, and there is accordingly 
 a want of through tramway accommodation in places 
 where the adjacent municipalities cannot agree. To 
 circumvent this difficulty attempts have been made to 
 use the facilities presented by the Light Railways Act, 
 which were really intended to facilitate tramways on 
 common roads for the accommodation of rural districts 
 where ordinary railways would not pay, but have 
 now been made use of in coupling urban districts 
 together. 
 
 The statement (p. 122) that in these various monopolies, 
 including railways, private capital is invested to the 
 amount of £1,000,000,000 is now greatly under the 
 mark. The capital of railways in the United Kingdom 
 alone exceeds £1,000,000,000 {^qq postea). 
 
 The Post Office. — A separate chapter (XL) is given to 
 the Post Office, which is full of statistical information, 
 contrary to Lord Farrer's practice, as we have seen with 
 regard to other monopolies, and where from the plan of 
 the book full statistical information is hardly required. 
 Without attempting to bring all the figures up to date 
 
SUPPLEMENTARY CHAPTER 19 
 
 I may notice that the annual number of letters, for 
 which Lord Farrer gives the figure of 1, 1 76,000,000, or 34 
 per head in 1880, became 2,323,000,000 in 1901 (nearly 
 double), or 57 per head. Postcards in the same time 
 increased from 123,000,000 to 419,000,000. The table 
 of comparison with other countries (p. 128) is of course 
 subject to the observation that^ while the United 
 Kingdom has increased greatly other countries have 
 likewise increased. Letters conveyed have increased in 
 France from 524,000,000 in 1880 to- 842,000,000 at the 
 latest date before me ; in Germany from 732,000,000 to 
 2,182,000,000; and in Holland from 55,000,000 to 
 96,000,000. With regard to Telegraphs the number of 
 telegrams sent has increased from 31,000,000 in 1881 
 to 93,000,000 in 1900 ; and the income of the depart- 
 ment from £1,360,000 to £3,390,000; so that the 
 number of private messages per person and the whole 
 business has enormously increased. The Post Office 
 Savings Bank deposits have increased from £36,000,000 
 in 1881 to £136,000,000 in 1900, with an even larger 
 figure at the present time. [These deposits are of course 
 exclusive of those in the Trustee Savings Banks which 
 are, however, almost stationary.] Money Orders and 
 Postal Orders together have increased from about 
 £26,000,000 in 1880 to about £64,000,000 in 1900. 
 Generally the Revenue and expenditure of the Post 
 Office (including Telegraphs) have increased from 
 £9,000,000 and £6,000,000 respectively in 1880 to 
 £17,250,000 and £13,500,000 in 1900. 
 
 The Railway Monopoly. — Regarding Railways (Chap. 
 XII.) there is again a quantity of statistical information, 
 as to which I need only note that mileage has increased 
 
 c i? 
 
20 THE STATE IN ITS RELATION TO TRADE 
 
 from 18,175 in 1881 to 21,855 in 1900; tonnai,'c of 
 goods carried from 250,000,000 to 425,000,000 ; number 
 of passengers from 626,000,000 to 1,142,000,000 ; capi- 
 tal from £745,000,000 to £1,176,000,000; and net 
 earnings from £33,000,000 (1886) to £40,000,000 in 
 1900. The vastness and rapid growth of the business 
 require no farther illustration. 
 
 The principal change in legislation since Lord Farrer 
 wrote was that effected by the Acts passed a few years 
 after he left the department compelling each company 
 to submit a maximum tariff to the Board of Trader, 
 limiting the powers of the companies in respect to i-ates 
 and charges, and compelling them to submit differences 
 with traders to the judgment of the Railway Com- 
 mission created by the Regulation of Railways Act 
 1873. The Companies have since made complaints as 
 to the maximum charges thus forced upon them being 
 too low and inelastic in times of dear coal, and other 
 causes of increased working expenses ; but there does 
 not appear to be any extreme dissatisfaction amongst 
 them, while traders still complain of sviffering from the 
 railway monopoly, especially in competition with foreign 
 countries or in the competition of agricultural produce 
 with produce imported from foreign countries. Measures 
 have also been passed since Lord Farrer wrote forcing 
 the railway companies to introduce the block system, 
 the interlocking of points and signals, and other im- 
 provements in the working of the traffic ; and an Act 
 has quite lately been brought into operation imposing 
 on them after a certain interval the duty of having 
 carriages and waggons with automatic coupling, a 
 measure found to be a great means of saving life in the 
 railway working of the United States. 
 
SUPPLEMENTARY CHAPTER 21 
 
 Merchant Shipping. — Coming to the next Chapter 
 (XIII.) on Merchant Shipping, we find little to add, the 
 only important enactment since Lord Farrer's time 
 having been the Merchant Shipping Act of 1894, which 
 was a consolidating measure. The rules as to load lines 
 and the powers of stopping unsea worthy ships have been 
 modified a little so as to meet shipowners' complaints, 
 but nothing substantial has been changed. The figures 
 given (p. 158) as to the magnitude of the shipping- 
 interest should be modified a little now. The capital 
 employed has undoubtedly increased, while the profits 
 have not increased in proportion. Lord Farrer refers to 
 a paper of my own in 1882 as the authority for these 
 statements, and it may thus be permitted to me to 
 mention that another jDaper on the same subject was 
 read to the Statistical Society in 1899, and appears in 
 the Society's journal for that year. 
 
 Taxes and :7V«(/e. ^Passing over for the present the 
 next four Chapters, XIY., XV., XVI. and XVII., as 
 dealing with the general question of protection and the 
 endeavours of government by hall-mai-king, branding, 
 laws against adulteration, and similar devices to defend 
 the pviblic against practices injurious to society, we 
 come to Chapter XVIII. , dealing with the question of 
 taxes afiecting trade, that is, the taxes of Customs, 
 Excise, and Stamps. The chapter is called the "Taxa- 
 tion of Trade," which is hardly a correct designation, as 
 it is not " trade " that is taxed, but the persons trading, 
 although trade is no doubt affected. All that need 
 be noted is the productiveness of the taxes now as 
 compared with twenty years ago, the articles and rates 
 of duty being much the same, with the exception that 
 
22 THE STATE IN ITS RELATION TO TRADE 
 
 import duties on sugar and corn and an export duty on 
 coal have been added to the number. The total levied in 
 1900-01 was £26,000,000 from Customs, £33,000,000 
 from Excise, and about £8,000,000 from Stamps, the 
 total for Customs in the year 1901-2 being about 
 £4,000,000 more, and for Excise £1,000,000 less, so 
 that broadly speaking we may say that these taxes 
 affecting trade produce in all about £70,000,000 
 annually, as compared with £40,000,000 only at the 
 time Lord Farrer wrote.^ It is still true, however, that 
 none of these taxes are protective, and that the whole 
 tariff is one of great simplicity. Although Lord Farrer 
 does not deal with Imperial taxation generally as 
 beyond his province, he notices local taxation, and 
 points out the different sorts of local taxes, noting 
 especially the small amount levied locally by taxes in 
 the nature of Customs and Excise. This point has 
 since been strengthened by the abolition of the coal, 
 wine, and corn dues levied by the City of London. It is 
 to be noted, however, that the burden of rates, the 
 direct charge on real property, which are held by many 
 to burden trade, though that is hardly in accordance 
 with economic theory, has increased enormously since 
 1880. Lord Farrer appears to quote the figures for 
 England only, but it may be more satisfactory to give 
 figures for the United Kingdom as a whole. From 
 these it appears that while the income of local authori- 
 ties in 1885-6 (exclusive of sums borrowed) was about 
 £55,000,000, of which £38,000,000 was from rates, the 
 total income in 1898-9 amounted to the huge sum of 
 £89,000,000, of which no less than £46,000,000 would 
 
 1 And plus about £6,000,000 more on account of taxes since 
 transferred to local government authorities. 
 
SUPPLEMENTARY CHAPTER 23 
 
 be from rates. Whetlier rates are a burden on trade or 
 not, the absorption of such large sums by local authori- 
 ties at a time when Imperial revenues are likewise very 
 large is a matter concerning trade. 
 
 Lord Farrer concludes by stating, " Many persons 
 would be glad to see the taxes on tea, coffee, and cocoa 
 abolished. But we may fairly say that our taxation, 
 both general and local, has been so arranged as to throw 
 no undue burdens on trade." This is still true, I believe 
 notwithstanding the heavy rates and the heavy income- 
 tax and death-duties ; and notwithstanding the new 
 import duties on sugar and corn, and the new export 
 duty on coal ; but it seems doubtful whether Lord Farrer 
 would have thought so. The situation in any case is 
 not quite what it was when he wrote. 
 
 Trade in War. — The last Chapter of all before the 
 summary and conclusion relates to the State and Trade 
 in War (Chapter XIX.). There is nothing to add 
 here, as far as I can judge, except to note that the 
 paragraph on maritime capture (pp. 203-4) deserves 
 perhaps even more attention than it has yet received. 
 Many years ago, at the time of the Declaration of 
 Paris, this country had an opportunity of joining the 
 United States in procuring a general agreement among 
 maritime countries to the exemption of private pro- 
 perty, whether of goods or vessels, from capture at sea, 
 excepting of course vessels running a blockade. In de- 
 ference to the opinion of naval experts that the right 
 of destroying the merchant navy of an enemy was in 
 our hands a valuable weapon of offence, we neglected to 
 join the United States. The result is that our own 
 mercantile fleet is exposed to capture in time of war, 
 
24 THE STATE IN ITS RELATION TO TRADE 
 
 and we stand to lose enormously by enemies' cruisers ; 
 but no other power in the world has anything at stake 
 either absolutely or relatively such as we have. The 
 weapon of offence we have been so anxious to retain is 
 thus of little value to us, and it may undoubtedly be 
 a strong weapon against us in the hands of our enemies. 
 The final remarks as to the danger of " expansion " 
 have already been referred to. 
 
 Free Trade and Protection. — I have reserved to the 
 last the Chapters on Protection, &c., in oi'der to notice 
 that on this head probably the most recent discussions 
 might perhaps have given a new tone to the whole book. 
 The argument of Chapter XV., notwithstanding its 
 theoretical cori-ectness, sounds a little antiquated, when 
 we are occupied with such questions as projects of an 
 imperial zollverein or preferential arrangements between 
 the colonies and the mother country, or the subsidies of 
 foreign governments to sugar and shipping. We can 
 imagine to some extent what Lord Farrer would have 
 said on the new subjects, as he lived to write on the 
 sugar bounty question ; but it is never quite safe to 
 predict of a man of Lord Farrer's calibre what his 
 action would have been in circumstances not before him, 
 and all one can now do is to notice the changed 
 circumstances themselves to which the discussion must 
 adapt itself. 
 
 One of the new conditions is the necessity of increased 
 government expenditure, which in turn compels resort to 
 indirect taxes which had been laid on the shelf for 
 years when this book was written. Some will argue, no 
 doubt, that there is no such compulsion, that other 
 forms of taxation are still the best even with increased 
 
SUPPLEMENTARY CHAPTER 25 
 
 expenditure, but it is enough for the present purpose 
 that the question is even debated. The position is 
 quite different from one in which the abolition of taxes 
 on tea, coffee, and cocoa could still be spoken of as 
 probable. 
 
 The question of imposing such indirect taxes also 
 raises the subject of protection in a new way. While 
 agreement is easy as to the inexpediency of protection ; 
 how about the incidental protection that may be given 
 by taxes that are otherwise desirable 1 A shilling duty 
 on corn, for instance, which is the main feature of this 
 year's budget, gives protection to that extent to corn 
 produced at home ; but if the duty is a convenient 
 mode of raising money, and prevents, as far as it goes, 
 the need for some more odious form of taxation, is it to 
 be rejected solely because it possesses the inconvenience 
 of giving a small amount of protection ? Questions like 
 these are not to be put aside when a great revenue has 
 to be raised. Govei'nment is a practical business ; and 
 breaches of theory, however bad they sound logically, 
 may be ventured on when necessity compels. 
 
 The question again of preferential arrangements with 
 the colonies, which undoubtedly involve protection, 
 seems likely to come upon us as a political problem. 
 Suppose this country and its public men to be generally 
 convinced of the inexpediency of arrangements of the 
 sort, but it is made evident that a large proportion of 
 our self-governing colonies are honestly and warmly 
 attached to some such scheme, to the extent that they 
 will regard neglect of their wishes as an affront, will it 
 be possible to neglect such ideas altogether, however 
 much we may dislike them ? 
 
 The same with sugar bounties. If the colonies, 
 
26 THE STATE IN ITS RELATION TO TRADE 
 
 rightly or wrongly, press a claim to have the whole 
 empire united in retaliation against the measures of 
 foreign governments, which contribute to ruin some of 
 our sugar-producing colonies by means of bounties, will 
 it be possible for the mother country to stand out on 
 free trade grounds against retaliation 1 The answer to 
 this last question has already been given by the Sugar 
 Convention of Brussels and the general approval it has 
 received. Lord Farrer vehemently opposed a former 
 convention of a similar nature which the government 
 was obliged to drop. But the political element due to 
 colonial opinion was not in such force then as it now is, 
 and if he had lived now, retaining the same opinion and 
 his former vigour, it may be doubted if his success 
 would have been the same. 
 
 Last of all, a serious question is coming to the front 
 in regard to subsidies of shipping given ■ by foreign 
 powers. Half a century ago, and even later, such 
 subsidies would have been laughed at by earnest and 
 convinced free-traders. The feeling would have been 
 that if foreign powers gave money to carry English 
 goods and passengers cheaply we should let them. Up 
 to a very recent date it was likewise easy to say that 
 our own mercantile marine had mainly gro^vn without 
 subsidies, only a very small part of our fleet being 
 subsidised to carry mails or to be prepared to become 
 cruisers in time of war. But a few facts of a serious 
 kind have caused the reflection that political questions 
 of great magnitude are here involved and not merely 
 questions of an economic order. It is held to be ob- 
 viously inexpedient politically that we should permit 
 our merchant fleet to be seriously reduced by the 
 measures of foreign syndicates, like the American " com- 
 
SUPPLEMENTARY CHAPTER 27 
 
 bine " already referred to, or that in the trade between 
 the mother country and the colonies the ships of foreign 
 countries, owing to subsidies, should take a leading 
 place. There is an apprehension that unless we take 
 care our mercantile fleet, which is a vital part of our 
 imperial organisation, will be seriously injured. Pro- 
 tection or no protection, a feeling is growing up that 
 foreign subsidies, and similar hostile attacks on our 
 shipping, must be met by adequate measures of re- 
 taliation, including, if necessary, the cancelling of the 
 repeal of the Navigation Laws already referred to as a 
 great free-trade measure in its day. 
 
 How far the change of feeling as to free trade and 
 protection thus noted is justified, this would hardly be 
 the place to discuss. But it is at least fair to admit 
 that for political reasons a great deal may be done 
 which could not receive approval if economic matters 
 and reasoning were alone concerned. The omission of 
 politics in this connection was an oversight in my 
 opinion, even when Lord Farrer wrote, but thei'e is no 
 question now as to the complication of free trade 
 doctrine with politics — a complication much greater, 
 and leading to far more serious issues, than anything 
 which existed at the former time and even for many 
 years after. How far the action of the State in its 
 relation to trade will be in fact affected, it is too soon 
 as yet to speculate. 
 
CHAPTER I 
 
 WHAT IS THE MEANING OF THE STATE AND OF TRADE ? 
 
 When we speak of the state in its relation to trade, the 
 questions at once arise, what do we mean by the state, 
 and what do we mean by the trade, of England ? It 
 will be well to answer the second of these questions first, 
 for it is not till we know what is the subject with 
 which the state has relations that we can put a mean- 
 ing on the somewhat vague entity which has relations 
 with it, or on the nature of those relations. 
 
 Meaning of Trade. — Taken in its widest sense, 
 trade may be held to include all operations by which 
 skill and labour, and the products of skill and labour, 
 are exchanged — the hiring of the workman, and the 
 employment of the professional man, as well as the 
 buying and selling of material wares. But I am 
 relieved from travelling over so wide a field by the 
 treatise which Mr. Stanley Jevons has contributed to 
 this series on the subject of the relation of the state 
 to labour, and I shall therefore, as far as possible, 
 avoid touching upon the many points in which the 
 state comes in contact with the employment and hii*e 
 of personal labour and skill. 
 
 The field remaining to me is only too wide for 
 
TRADERS— CAPITALISTS-BROKERS -CARRIERS 29 
 
 ado(|uate discussion in a treatise of this kind. It 
 comprises all buying and selling of material commodities, 
 or material services, and all the subsidiary operations of 
 capital and credit ; of capital, which is the title to 
 existing material commodities ; of credit, which is the 
 trust that material commodities will be forthcoming : 
 Quidquid emunt homhies nost7'i est farrago libelli. 
 
 The trade of this country is a very large and a very 
 varied thing. There is, in the first place, all the buying 
 and selling which goes on within the country itself : 
 every village shop, eveiy cooperative store, every 
 market, every dealing between retailers, mei^chants, 
 manufacturers, importers and producers ; every banking 
 and financial establishment in the United Kingdom ; 
 with all the subsidiary elements of agency, of brokerage, 
 and of carriage, which are necessary for their operations. 
 But of these internal operations, vast as they are, we 
 have no complete measure in figures. The aggregate 
 value of our home trade is not given in any official 
 statistics ; and of the different attempts which have 
 been made to estimate it, none appear to me to be 
 trustworthy ; we have no complete returns of all our 
 home industries ; and even if we had, it would be 
 almost impossible to distinguish how much of those 
 industries and theii- profits is due to foreign, and how 
 much to home, markets. But our ultimate consump- 
 tion at home of articles produced, or partly produced, at 
 home, must be enormous, and the home trade which 
 supplies that consumption must be enormous also. The 
 causes of our immense internal trade are to be found in 
 our great accumulated wealth ; in the differences of 
 rank, class, and occupation, producing an immense 
 variety of wants ; in the variety as well as the mass 
 
30 THE STATE IN ITS RELATION TO TRADE ch. 
 
 of things which the country produces ; in the coal 
 and iron which enable us to manufacture ; above all, 
 in the energy, skill, and ambition of our people, in 
 their desire to improve their condition, and the facilities 
 which their own character and their free institutions 
 give them for so doing. 
 
 We are also the greatest of traders with other 
 nations. The exports and imports of the United 
 Kingdom are estimated to be nearly one-fourth of the 
 foreign trade of the whole world ; and if the trade 
 carried on with English capital between foreign 
 countries were included, our foreign trade would be 
 found to amount to much more. 
 
 We are also the greatest capitaHsts, the largest 
 lenders to foreign nations; and we reap the benefit 
 in that excess of imports which is so much dreaded 
 by protectionists and fair traders. Good statisticians 
 estimate our investments abroad at not much less than 
 £2,000,000,000. 
 
 We are the greatest of brokers ; we do the business 
 of agents for other nations, and we get an ample com- 
 mission upon it. 
 
 We are the greatest of carriers. Our shipping — ever 
 growing, both actually and also proportionately to that 
 of other nations — is now equal to more than one half of 
 the shipping of the whole world. The value of our 
 ships is estimated to exceed £100,000,000; the amount 
 of cargoes afloat under our flag at any given moment 
 is very much larger ; and the property covered by 
 it in the course of a year is probably not less than 
 £1,000,000,000. Our ocean trade is two-thirds or more 
 of the ocean trade q^ the whole world. Our superiority 
 in shipping is due, in part, to the causes I have men- 
 
I THE POWER OF THE STATE 31 
 
 tioned above, but also and especially to the courage 
 and seamanship of our mariners, and to the skill of our 
 engineers. 
 
 It would be easy to illustrate the magnitude of our 
 foreign trade by further details. But I will not 
 attempt to give figures which are easily accessible 
 in the Statistical Abstract, and other well known 
 compilations. 
 
 Mea7iing of the State. — The essential feature of trade, 
 in other words, of buying and selling, consists in a free 
 exchange of commodities between two persons ; each 
 giving to the other something which he wants less and 
 the other wants more than the thing which the other 
 gives to him ; and the exchange may be either completed 
 at once or may be the subject of a mutual promise or 
 contract. In one sense every thing which lies outside 
 this free dealing between the two persons concerned may 
 be called the state. Every dealing is surrounded and 
 limited by a large number of circumstances which are in- 
 dependent of the will of the parties ; and every dealing may 
 involve a large series of consequences which the parties 
 themselves do not, and often cannot, provide for. Besides 
 positive law, there are customs and habits, either of the 
 whole community, or of particular classes, which indi- 
 vidual buyers and sellers can no more disregard than they 
 can disregard the law itself — customs and habits which 
 are often only law in process of formation. We feel the 
 support or the weight (as it may be) of these habits in 
 almost every action of our lives ; and as they proceed from 
 the instincts or desires of the community, whether ex- 
 pressed and conscious, or silent and unconscious, we 
 might possibly include these under the term "state." 
 But to do so would lead us too far, and we must reject 
 
32 THE STATE IN ITS RELATION TO TRADE vh. i 
 
 all that lies outside of, and restricts freedom of buying 
 and selling, as beyond our proper scope, unless it is 
 embodied in positive rules which can be enforced. 
 
 This limitation, however, still leaves us a very large 
 field. There remains the whole domain in which the 
 state, acting through the means of law and administra- 
 tion, which are the expressed voice of the state, affects 
 buying and selling. It does so in a variety of ways. 
 It affords security ; it enforces and limits contracts ; it 
 regulates monopolies ; it places restrictions on certain 
 dealings. In some cases, and those the most extensive, 
 its function is to render trade practicable and to facili- 
 tate its operations : in other cases its function is in the 
 nature of intei'ference with what traders might other- 
 wise do. To give a short outline of these functions is 
 the object of this treatise. 
 
CHAPTER II 
 
 the action op the state is effected through the 
 legislature; the courts of lawj and the 
 executive 
 
 The general action of the state is effected through 
 various organisations. 
 
 Of these the Legislature is the most important. It 
 is of course supreme over the rest ; and, except in the 
 case of judge-made law, which is an interpretation by 
 the courts of the customs of trade, or an application 
 by them of existing legal analogies to new cases, all 
 interference with trade originates with the Legislature. 
 The Legislature carries its will into effect in two distinct 
 ways. It may pass laws which give certain rights and 
 remedies to the persons interested, and may leave it to 
 them to enforce the law by taking their own proceedings, 
 according to their own interests, in the courts of law. 
 In this case the courts are the organs through which 
 the state exercises its power. Or, again, the Legislature 
 may intrust the duty of enforcing the law to an execu- 
 tive department, which then becomes the organ of the 
 state for the purpose. The latter is the more obvious 
 and direct, and I believe at present the more popular, 
 form of interference : and in many cases it is necessary. 
 
 D 
 
34 THE STATE IN ITS RELATION TO TRADE Ch. 
 
 But when the other form of interference is practicable, 
 it is probably the more searching and effective, and it 
 is free from the numerous objections which exist to 
 the creation of hosts of inspectors and officials. What 
 people do not see is that the two forms of interference 
 are generally incompatible. There may be a remedy 
 by way of penalty or damages ; or there may be a remedy 
 by way of government supervision, but there cannot be 
 both. If a government officer has stated an article to 
 be what it pretends to be, or what free contract or 
 the law requires it to be, no purchaser can refuse to 
 receive it or recover damages for loss which he sus- 
 tains by its defects. If a government inspector has 
 certified a mine, or a ship, or a railway, or a house to 
 be safe, the mine owner, the ship owner, the railway 
 company, or the builder are freed from all liability, civil 
 or criminal, in courts of law, on the ground that it was 
 unsafe, however unsafe it may really be, and however 
 culpable the conduct which made it unsafe. 
 
 The two forms of interference are sometimes con- 
 trasted as " Prevention " and " Cure " ; and it is said 
 that prevention is better than cure. It is better, say 
 the advocates of government supervision, to prevent a 
 wrong being done, than to punish it or give damages 
 for it when done. But the contrast is false. A remedy 
 which inflicts a heavy punishment, whether in the shape 
 of imprisonment or damages, for an injury, is a deterrent 
 as effective as — often more effective than — the presence 
 of a policeman. "You are hanged," said the judge to 
 the criminal, " not because you committed murder, but 
 in order that other persons, when tempted, may not 
 commit murder." On the other hand, there are many 
 cases in which there is great difficulty in bringing home 
 
II PREVENTION AND CURE 35 
 
 a criminal I'emedy, or even a remedy in damages. But 
 the question between the direct interference of a 
 government and the remedy by penalty or damages 
 must in all cases be, not whether " prevention is better 
 than cure," but which of the two modes of prevention 
 is the most practicable and most effectual. 
 
 The direct interference of the executive is exercised 
 either by one of the departments of the central govern- 
 ment presided over by a minister of the Crown, responsible 
 to Parliament, or by some local authority, such as the 
 municipal council of a town. Whether exercised by 
 the one body or the other it is equally the operation of 
 the state ; and we shall find that both the one and the 
 other, and sometimes both, are constantly called into 
 play according to the difference of the subject-matter. 
 Until late years there has been some indisposition on 
 the part of Parliament to trust large powers to local 
 representative bodies, arising partly from interested 
 opposition, partly from mistrust of local authorities, 
 partly, perhaps, from a jealousy of parting with power 
 — a feeling which actuates popular assemblies no less 
 than kings and ministers. But there appears at present 
 to be an increasing and wholesome feeling in favour 
 of delegating the control of local matters to local 
 bodies ; a most desirable thing, both because it relieves 
 the overburdened Legislature and the growing central 
 administration ; and still more because it encourages 
 the development of public spirit and political capacity 
 throughout the country. 
 
 The treatise by Mr. Traill on Central Government, 
 which forms part of this series, describes the several 
 great offices of state and their several duties. It is there- 
 fore unnecessary for me to give any general account of 
 
 D 2 
 
30 THE STATE IN ITS RELATION TO TRADE ch. ii 
 
 the way in which the various administrative functions 
 of the state relating to trade are distributed amongst the 
 departments. That distribution can scarcely be referred 
 to any general principle, since it has been a matter of 
 history and of accident, rather than of design ; and the 
 functions of government which affect trade are exercised 
 by different departments without much regard to logical 
 consistency. Much has been said lately about a Ministry 
 of Commerce, but no very distinct programme of its 
 functions has yet been formulated. It would no doubt 
 be possible to rearrange the duties of the several depart- 
 ments more logically than they are now arranged, and to 
 give to a minister for trade a higher and more definite 
 position in the government. But it must be remembered 
 that, do what you will, the duties of such a minister must 
 necessarily run into and mingle with those of other 
 ministers ; that many of the relations of the govern- 
 ment with trade have for their object, not trade itself, 
 but some other object which is the proper subject for 
 another department of the state ; and, above all, that 
 the name of the minister, and even the arrangement of 
 business, is of much less importance than the character, 
 position, and ability of the particular officers, political or 
 permanent, who have to do it. If any such change as is 
 proposed should be made, may I be allowed to express 
 a hope that the time-honoured name of the " Board of 
 Trade " may still be preserved, — a name connected for 
 evil or for good with the history of our government, 
 our colonies, and our commerce, from the time of Oliver 
 Cromwell to that of Mr. Gladstone. 
 
CHAPTER III 
 
 THE STATE PROTECTS LIFE AND PROPERTY ; PROVIDES MEANS 
 FOR THE SETTLEMENT OF DISPUTES ; PROMOTES 
 EDUCATION ; AND FURNISHES INFORMATION 
 
 There are certain general functions of the state which 
 have no special relation to traders more than to any 
 other class of the people, but without which trade could 
 not flourish, and could scarcely exist. Such are the 
 following : — 
 
 Protection to Life and Property. — By means of the 
 police, of the criminal law, and of civil remedies for 
 violence and injury, the state affords that security 
 against robbery and wrong without which free buying 
 and selling would come to an end. No goods could be 
 safely carried or kept for sale without it. The cattle 
 markets of the Scotch border would have been imprac- 
 ticable in the old days of cattle lifting ; and a few days 
 of such riots as Lord George Gordon's, would stop the 
 business of London. The robber barons of the Rhine 
 were put down in the interests of the trading towns of 
 Germany ; and the growth of maritime commerce has 
 led the nations to treat pirates as the one class 
 of criminals whom no flag protects from condign 
 punishment. 
 
38 THE STATE IN ITS RELATION TO TRADE ch. 
 
 But it is needless to illustrate this point. The first 
 and most essential relation of the state to trade is to 
 afford security for life and property. 
 
 Settlement of Dispittes. — In establishing courts of law 
 with the requisite powers, the state provides the means 
 of settling the questions concerning property which 
 arise between its subjects, and which, in a trading 
 country like ours, are especially numerous and important. 
 It is in the process of determining such disputes that a 
 body of law is formed ; by adopting the customs of 
 traders as their guide, and reducing those customs to 
 logical consistency, a succession of able judges have 
 produced our excellent system of mercantile law. It 
 may be added that the function of the state in settling 
 disputes is distinguishable by no definite line from its 
 function of enforcing contracts, which is more fully 
 noticed below. 
 
 Education. — General education, from reading, writing, 
 and arithmetic, upwards, is essential to business. Be- 
 yond this, the state gives a certain amount of special 
 assistance to manufactures, by helping to establish 
 museums, and by making grants to science and art 
 schools. It is probable that technical education has yet 
 to receive a much greater development in this country, 
 and the state will no doubt be called upon to take a 
 large part in it. 
 
 Information. — The state furnishes this in a variety 
 of ways, many of which are generally, and some specially, 
 concerned with trade. 
 
 It undertakes scientific observations and publications 
 which private effort cannot accomplish. Among these 
 are astronomical observations and the Nautical Almanac ; 
 hydrographic surveys and admiralty charts ; surveys 
 
Ill INFORMATION 39 
 
 and maps of the United Kingdom ; geological and mining 
 surveys and records; magnetic and meteorological ob- 
 servations. It publishes elaborate statistics of all 
 matters coming under the cognisance of public depart- 
 ments, of which those relating to the foreign trade 
 of the country are amongst the most important. It 
 collects, through the diplomatic and consular service, 
 reports concerning the trade and industries of foreign 
 countries, and it lays before the public either in the 
 Gazette or in Parliamentary Papers a great variety of 
 information on subjects connected with trade. 
 
CHAPTER IV 
 
 THE STATE ENFORCES, EXPLAINS, AND ADDS TO 
 CONTRACTS 
 
 To enforce contracts is, as we have said, one function 
 of the state. It is a function of great importance, and 
 is especially connected with trade. The nature of this 
 function, therefore, calls for some general observations. 
 
 Freedom, of Contract. — Every act of buying and sell- 
 ing, unless completely executed at once, constitutes what 
 the lawyers call a contract. But is not contract free ? 
 Is not anybody at liberty to make or not to make a 
 contract of purchase or sale, and, if so, is he not in so 
 doing out of the domain of state interference ? To the 
 first of these questions I shall reply presently. To 
 the second I say — By no means. The very notion of 
 a promise, an obligation which the law will enforce, 
 implies that the transaction is not complete without 
 the sanction of law ; that it is one which the law 
 steps in to complete if either of the parties fails to do 
 so. This is the action of the state in its most powerful 
 and all-pervading form, so universal in its operation 
 that we hardly think of its existence. But it could 
 not exist among men who are not bound together by 
 strong common institutions : it only does exist in its 
 
CH. IV FREE CONTRACTS 41 
 
 fully developed form in very liiglily organised com- 
 munities. The point is an important one, and is often 
 lost sight of. Freedom of contract is often spoken of 
 as if it were the same as simple freedom of action or 
 disposition. But it is no such thing. 
 
 Contract involves obligation, which is the opposite of 
 freedom. When a man makes a contx-act he gives up a 
 portion of his freedom ; he binds himself by a promise 
 to another person to do or not to do certain things ; and 
 this promise, if binding in the eye of the law, is one 
 which society, with all its crushing and overwhelming 
 power, will compel him to perform. To use the words 
 of a recent book of authority, " Every person not subject 
 to any legal incapacity may dispose freely of his actions 
 and property within the limits allowed by the general 
 law. Liability on a contract consists in a limitation of 
 this disposing power by a voluntary act of the party 
 which places some portion of that power at the com- 
 mand of the other party to the contract. So much of 
 the contractor's individual freedom is taken from him 
 and made over to the other party to the contract." ^ 
 Freedom of contract is, therefore, a very different thing 
 from freedom of action and disposition. So far from 
 the doctrine of contract being identical with freedom, 
 it is j^ifo tanto the reverse. So far from its being non- 
 interference on the part of the state with individual 
 action, it is interference of the most subtle, searching, 
 and overwhelming kind. It brings the whole weight 
 of the social fabric upon the man who has bound him- 
 self by a promise. His freedom consists in being able 
 to make or to abstain from making a binding promise. 
 But when he has made it, the state uses its whole 
 ^ Polloch on Contracts, p. 187, 2nd ed. 
 
42 THE STATE IN ITS RELATION TO TRADE en. 
 
 despotic power to compel or prevent his free action. 
 Care therefore has been taken by the state to prevent 
 the abuse of such a power. The law of contract — a 
 branch of law which is ever growing in importance, 
 in magnitude, and in complexity — is, in fact, a statement 
 of the limitations which it has been found necessary to 
 impose on absolute freedom of contract, the definition 
 of the conditions under which, and of the manner in 
 which, a man may make such a promise as the law will 
 enforce. 
 
 The great difference between the system of free con- 
 tract and the system which it replaced lies, not in the 
 absence of obligation, but in the substitution of a self- 
 imposed obligation for an obligation imposed by some 
 external power. The progress made in the last hundred 
 years has consisted in the abolition of a great numbei' 
 of the restrictions which, whether in the form of feudal, 
 tribal, or family relations, of trade guilds and their 
 rules, or of the protective industrial systems of modern 
 Europe, made a large part of each man's obligation 
 depend, not on his own individual choice, but on certain 
 rules and relations laid down and determined for him 
 by society, by custom, and by law. The substitution of 
 the rights and duties arising from the free contract of 
 the individual for the duties arising from status and 
 relation is one feature in the history of that develop- 
 ment of the individual, which in the domain of law has 
 been so well illustrated by Sir H. Maine, and which is 
 no less marked in the domains of political, of social^ 
 and religious liberty than in that of buying and selling, 
 in which it has played so important a part. 
 
 In adopting freedom of contract as the general prin- 
 ciple governing mercantile dealings, what has been done 
 
IV THE STATE AND CONTRACTS 43 
 
 is not to abolish obligation, but to substitute for an 
 obligation devised by custom or law an obligation self- 
 imposed by the individual, and this obligation, the 
 state, not without many additions and limitations, 
 undertakes to enforce. 
 
 Ccmtracts Unforced by the State. — The widest and most 
 important function of the state with relation to trade 
 is then to enforce contracts ; and it does this by means 
 of suits for damages and for specific performance in 
 courts of law. In the next chapter will be found 
 mention of some of the branches of law into which 
 this great function of the state develops. To treat 
 it fully is of course impossible, for to do so would 
 be to write a treatise on mercantile law, to enumerate 
 all the legal rules which affect both retail and wholesale 
 dealings. 
 
 I have said that in enforcing self-imposed obligations 
 the state does so with many limitations and also with 
 many additions. Of the limitations I shall speak below. 
 On the additions it may be desirable to add a few 
 general observations, so as to show how much the state 
 does, not only in enforcing the actual obligations which 
 people have made for themselves, but in so construing 
 those obligations as to make them in many cases far 
 more extensive than the parties ever really con- 
 templated. 
 
 Contracts Explained and Supplemented by the State. — 
 The great principle which governs the action of the 
 law, i.e., the action of the state, in these cases, is that 
 free and intelligent consent is of the essence of such a 
 contract as the law will enforce. This is entirely at 
 one with the economical principle which relies on free 
 and intelligent choice, dictated by self-interest, as the 
 
44 THE STATE IN ITS RELATION TO TRADE ch. 
 
 most efficient tagent in the production of wealth. In cases 
 where there is no such free and intelligent consent, no 
 such free choice, the essential elements are wanting 
 which, in the eye of the law and political economy, give 
 sanction to contract obligations. But we are constantly 
 in the habit of assuming that this free choice and con- 
 sent exist where there is really no choice or consent at 
 all, and no intention of consenting; and the habit is 
 fostered by the fictions to which lawyers, in their 
 custom of referring all obligations to contract, are 
 constantly resorting. We have no right to assume, 
 as we constantly do, that, in matters which have 
 become habitual, each person does or can exercise free 
 choice whenever he makes what is termed a contract. 
 Life would be intolerable if he did. Nine-tenths of 
 the consequences of all our dealings are fixed for us 
 by practice and by custom, and we are as unable to 
 escape from these consequences as if we were enjoined 
 by a specific statute. When we order a bale of goods, 
 when we sell the produce of our land or our labour, 
 when we take a railway ticket, when we send a packet 
 by land or sea, when we insure our lives, our houses, 
 our ships, or our goods, — in short, in almost every 
 dealing of life, we subject ourselves to a series of 
 conditions and consequences, many of which we do 
 not and cannot know, and from many of which, did 
 we know them, we should be absolvitely incapable of 
 freeing ourselves. 
 
 And yet, whenever a question arises in the law- 
 courts as to the effect to be given to any of these 
 conditions, the question which the lawyers put to 
 themselves is almost always, " What did the parties 
 mean ? " and the conclusion at which they arrive is 
 
TV THE STATE AND CONTRACTS 45 
 
 justified or even sanctified in their eyes by the as- 
 sumption of an implied promise, wlien, if the truth 
 were told, in nine cases out of ten the parties had 
 no meaning about it at all, having never contemplated 
 the contingency which has arisen. And even if the 
 question were put in the more plausible form, " What 
 would they have intended if they had foreseen the 
 contingency?" it is still open to the observation that 
 they might not, and in many cases would not, have 
 been free agents in the matter. To say that a man 
 must be held to have dealt with a view to all the 
 consequences which law, which is the voice of the 
 state, attaches to such dealings, may lead to the con- 
 clusions which justice and convenience require. But 
 to say so leads us too often to ignore the fact that 
 he did not as a matter of fact have these consequences 
 in view, and that the state has really created them 
 for him. 
 
 The case of the law of carriers and of innkeepers 
 affords a good illustration. By the law of England the 
 carrier was supposed to take the risk of loss or destruc- 
 tion of the goods committed to his care, and the 
 innkeeper was held responsible for articles deposited 
 by travellers in his inn. The lawyers added these 
 stipulations to the actual contract, and justified the 
 addition on the ground that it must have been what the 
 parties intended. But as a matter of fact special stipu- 
 lations to this effect were not made, and it is not likely 
 that any carrier or innkeeper ever really intended to 
 make such a stipulation. Indeed, so far were the 
 added stipulations contrary to the real intentions of 
 the parties that the state has been foi^ced to step in 
 afresh, and by special statute to modify and limit the 
 
46 THE STATE IN ITS RELATION TO TRADE ch. 
 
 liabilities which, by the action of the courts of law, it 
 had itself created. 
 
 It is quite possible that the conclusions of the law 
 may be right, although arrived at by the fiction of an 
 intention or a promise which never existed ; but the 
 real absence of such an intention or promise shows how 
 large a part the state plays, not only in enforcing what 
 are ordinarily looked upon as the free and unfettered 
 contracts of the parties, but in adding to them and in 
 raising implications from them. 
 
 The state thus interferes with almost every mercantile 
 dealing by adding to it a number of incidents which 
 were not in the words, and often not in the minds, of 
 the parties to the contract. This interference however 
 forms part of the general mercantile law, and to 
 attempt to describe its effect or to follow its aipplication 
 to particular mercantile contracts would carry us into 
 a field far too wide for the scope of this treatise. 
 
 A further form of interference by the state of a 
 similar kind is to be found in the numerous cases in 
 which the legislature constantly interferes for the 
 purpose of altering the existing legal incidents of a 
 contract, leaving the parties either to adopt the altered 
 law by allowing it to take its course, or to adopt other 
 stipulations if they please. A well-known instance of 
 this sort of interference is to be found in the recent 
 Agricultural Holdings Act, which alters the existing 
 consequences of a farming lease, and imposes new 
 obligations on the landlord where there is no stipula- 
 tion to the contrary. It is obvious that here there 
 is no interference by the state with the freedom of 
 the parties to contract, but simply with the custom 
 or legal decisions which it has itself adopted as the 
 
IV THE STATE AND CONTRACTS 47 
 
 incidents of their contract when no other intention is 
 expressed. 
 
 We thus see that one most important function of the 
 state in relation to trade is to enforce contracts of 
 purchase and sale ; and to supply the deficiencies which 
 necessarily exist in all contracts by adding to them 
 those incidental consequences and conditions which, in 
 legal language, the parties must be supposed to have 
 contemplated, but which are, in fact, consequences and 
 conditions which the courts of law, having regard to 
 the ordinary practice of buyers and sellers, think to be 
 reasonable. This function of the state is exercised by 
 courts of law, and almost escapes notice as a function of 
 the state from its universal application and the tacit 
 consent with which it is accepted. We also see that it 
 is a further function of the state, acting through the 
 legislature, to see that these consequences and conditions 
 of a contract of sale are, from time to time, adapted to 
 the present wants of buyers and sellers ; to put an end 
 to such as are obsolete or injurious ; and to add such 
 as the ever varying and growing necessities of trade 
 require. 
 
CHAPTER V 
 
 MERCANTILE LAW 
 
 It is, as stated in the last chapter, impossible in a work 
 of this kind to do more than refer in the most general 
 way to that great mass of rules by which the business 
 of buying and selling is regulated, and to which we give 
 the general name of Mercantile Law. This law is not 
 separated from the great body of our law by any definite 
 line, for the remedies for non-payment of a debt or other 
 non-performance of a contract are the same whether the 
 cause of action has arisen out of buying or selling or 
 out of any other relation. But there are certain large 
 branches of law, which if not exclusively concerned 
 with transactions of sale and exchange, are yet so in- 
 timately connected with those transactions that they 
 may be said to owe their character and even their 
 existence to them. A reference to some of these will 
 show how wide and powerful is the influence which the 
 state, regarded as the authoritative exponent of legal 
 rules, plays in regulating all the doings of trade. 
 
 Debtor and Creditor. — The law of debtor and creditor 
 constitutes a very large portion of our civil code. It is 
 not exclusively mercantile, because, as noticed above, a 
 debt may arise out of relations which have nothing to 
 
OH. V PRINCIPAL AND AGENT 49 
 
 do witli trade. But by far the greatest number of debts 
 do arise directly or indirectly out of trading relations, 
 and therefore of the whole law of debtor and creditor 
 the greater part would have no existence but for 
 trade. 
 
 Partnership is a relation which involves joint profit, 
 and this profit is always made by some kind of trade. 
 The law of partnership, therefore, with all its incidents, 
 the rules which govern the creation and dissolution of 
 partnerships, the relation of the partners to one another, 
 and the rights and liabilities existing between them and 
 third parties, are rules which the state adopts and 
 enforces for the benefit of trade. 
 
 Joint-Stock Comjmnies. — These are an extended form 
 of partnership, requiring a special law of their own. 
 This law fills one of the longest acts in the statute- 
 book, and the act is supplemented by an ever-increasing 
 mass of judicial decisions. 
 
 Principal and Agent. — This is a relation which, though 
 it may exist independently of any commercial relation, 
 does in the great proportion of cases arise out of such 
 relations. In the present state of trade, when so many 
 mercantile transactions are carried on between far 
 distant places, and when the ever-growing magnitude of 
 the business done and of the organisations by which it 
 is done renders intermediate agency more and more 
 extensive and more and more indispensable, the law of 
 principal and agent is more than ever important to 
 trade. The relations of principal and agent to one 
 another and to third parties, embodied partly in statute 
 law, but still more in judicial decisions, form a large and 
 important branch of law. 
 
 Shipping. — This species of property is peculiar in many 
 
 E 
 
50 THE STATE IN ITS RELATION TO TRADE en. 
 
 respects, and has a special law of its .own, which is to 
 be found in one of the longest acts in the statute-book, 
 in a great number of amending acts, and in innumerable 
 judicial decisions, besides constituting a considerable part 
 of that somewhat vague system of rules known as 
 international law. On this subject more will be found 
 below in Chapter XIII. 
 
 Bills of Exchange. — This form of mercantile contract, 
 simple enough in its essential and original character, has 
 obtained such wide and varied use that it has given rise 
 to a complete system of special legal rules, which have 
 at last been codified in an act of the last session.^ The 
 case is interesting as an excellent illustration of the 
 way in which practice and custom grow into law ; and 
 is therefore worthy of special notice. 
 
 A bill of exchange is, in its original form, an order 
 by a trader who is selling goods upon the trader to 
 whom they are sold to pay the price of them to some 
 third person. The one trader may be in one place or 
 country, and the other in a different place or country. 
 When the order is acknowledged, or, in technical terms, 
 accepted, by the purchaser of the goods, the contract is 
 complete, and is performed by payment at the appointed 
 time. This instrument, with the right to sue upon it, 
 is, unlike most other legal contracts, transferable by 
 mere delivery, and it is not necessary to prove that any 
 consideration has been paid for it. Any person who in- 
 dorses it — i.e., places his name upon the back of it — 
 makes himself responsible for the payment to any sub- 
 sequent holder. Possessing these qualities, bills of 
 exchange become a valuable form of property. They 
 are used for a great variety of purposes : they are a 
 1 45 & 40 Vict. ch. 61. 
 
V FORMATION OF THIS LAW 51 
 
 common form of credit, and to a large extent replace 
 currency ; they are investments for bankers' deposits ; 
 they constitute the ordinary means of remitting money 
 from place to place, and of settling the balances of 
 trade between different countries ; and the price paid 
 for bills is an important index of the commercial and 
 monetary relations existing between different nations. 
 If it can be said with truth that modern trade could not 
 go on without money, it may be said with equal truth 
 that it could not go on without bills of exchange ; and 
 the body of rules which govern them, though it has 
 grown out of mercantile usage and not out of the direct 
 action of government, is now no less the creature of the 
 state than the law concerning the coinage. 
 
 Contracts with Carriers. — These again form a large 
 and elaborate branch of the mercantile law, and 
 are especially important in such a country as ours. 
 They include contracts with railway companies for 
 carrying and forwarding goods ; charter parties of 
 ships ; and, above all, bills of lading for goods carried 
 in ships, which are negotiable instruments, and carry 
 with them by mere assignment the actual property in 
 the goods which they represent. 
 
 Marine Insurance. — Policies of assurance, again, are 
 contracts of the greatest importance to a mercantile 
 country, and the difficult and complicated questions to 
 which they have given rise between shipowners, owners 
 of cargo, underwriters on ships, and underwriters on 
 cargo have called for decisions so numerous that they fill 
 volumes of reports and text-books. 
 
 Formation of this Laiv. — The above are some of the 
 principal branches of our law which owe their existence 
 to, and which support and regulate, our trade, and it will 
 
 E 2 
 
52 THE STATE IN ITS RELATION TO TRADE ch. 
 
 be seen from the above short reference to them how im- 
 possible it would be for trade to be carried on without 
 the action of the state which they involve. It is true 
 that the greater part of this law has grown out of the 
 practice of traders, and is not due to the original or direct 
 action of the sovereign or the legislature. Merchants 
 have done what they found useful, and the lawyers who 
 have been intrusted with the function of declaring the 
 law have very sensibly, by means of a useful fiction, de- 
 clared the law to be what the merchants have practised, 
 wisely confining their own part in the matter to ascer- 
 taining the customs of trade and giving to those 
 customs form and logical consistency. Finally, the 
 legislatui-e has, in some cases, adopted the rules thus 
 determined, and has given them the form and sanction 
 of an Act of Parliament. The case of bills of exchange 
 is an excellent illustration of the process of constructing 
 our mercantile law. The assignment by delivery of a 
 right of action was a thing unknown to our earlier 
 common law ; and the notion of a contract without con- 
 sideration was abhorrent to the doctrines of courts of 
 equity. But traders had found the convenience of the 
 modern bill of exchange which can be assigned by 
 delivery, and for which no consideration need be shown, 
 and wise judges adopted as law what the merchants had 
 adopted as practice. An elaborate series of rules was 
 gradually worked out on this basis, and finally a code 
 containing these rules has been embodied in a printed 
 Act of Parliament. 
 
 It will however be found on consideration that in 
 every free and well-governed country, whether the 
 law has had its apparent origin in a decree of a sove- 
 reign, or in an act of a representative legislature, or 
 
V OPERATION OF THIS LAW 53 
 
 in the adoption by judges of an existing practice as 
 law, the law thus adopted and declared is really an 
 expression of a popular want, and a sanction given in 
 the name of the collective nation to a rule which it 
 needs and of which it approves. Our Mercantile Law 
 is, fortunately, more than any other branch of law the 
 direct outcome of the needs and practices of trade, and 
 to this it owes its great excellence. But it is not the 
 less on this account the voice of the state. 
 
 Operation of this Law. — When it is said that the law 
 regulates all mercantile transactions, it must not be 
 supposed that its active operation is consciously and 
 generally felt. The law acts as a guide and a scarecrow, 
 but it is seldom necessary to apply for its compulsory in- 
 tervention. Take the law of debtor and creditor : every 
 debt can be enforced at law ; but out of the many millions 
 of debts which are incurred every day, the number which 
 are enforced at law is small indeed. We often hear of 
 commercial dishonesty, but it is the exception, and a 
 rare exception. The more surprising thing is to think 
 of the innumerable transactions which are completed, 
 the millions of money which change hands daily, on 
 the faith of a word or a scrap of paper, without even 
 the consciousness of a legal obligation. Honesty is not 
 only the best policy, it is the one essential virtue of a 
 trading community. Law is appealed to only in very 
 exceptional cases of distinct roguery, or in cases where 
 real doubt exists as to what the obligation ought to be. 
 The law is not felt at all in the great majority of 
 cases where its intervention is not required. Hence 
 the value of civil liability as a remedy for wrong, as 
 compared with the favourite remedy of direct adminis- 
 trative supervision. Where it can be made the duty 
 
54 THE STATE IN ITS RELATION TO TRADE ch. v 
 
 of men to perform a given duty or to abstain from a 
 given injurious practice, where this duty can be made 
 the foundation for a civil suit at law, and where 
 it is sufficiently to the interest of their fellow-men 
 to make them abstain, an action for damages by the 
 person injured is not only the most efficient remedy, 
 but it has the great advantage that it is applied only 
 in the particular cases in which a remedy is needed, 
 and does not, like the supervision of an executive 
 officer, interfere Avith all the innocent operations of 
 ordinary dealings. 
 
CHAPTER VI 
 
 GENERAL LIMITATIONS BY THE STATE OP CONTRACT 
 OBLIGATIONS 
 
 It is, as we have seen, a most important function 
 of the state to enforce the obligations of trading 
 contracts% and in so doing to add largely to those 
 obligations. It also interferes by imposing a great 
 number of limitations on these obligations. Of these 
 limitations some are general in character, restricting 
 under certain circumstances the power or right to enter 
 into any such obligations, and restricting or abolish- 
 ing under certain circumstances the binding power of 
 such obligations. These general limitations form the 
 subject of the present chapter. 
 
 Personal Disabilities. — An infant, a drunken man, 
 and a lunatic cannot trade at all ; they are not 
 allowed to bind themselves by any contract obligation 
 to a person who knows their condition. 
 
 A married woman's power of trading has hitherto 
 been limited ; but this limitation is done away with 
 by a statute of the last session (45 & 46 Vict. ch. 75), 
 which gives her complete control over her own pro- 
 perty, enables her to bind herself and it by trading 
 
56 THE STATE IN ITS RELATION TO TRADE ch. 
 
 contracts, and makes her subject to the bankruptcy 
 law. 
 
 A trader cannot bind himself by any general contract 
 not to exercise a lawful trade, and contracts for a strike 
 or lock-out cannot therefore be enforced at law. 
 
 An alien enemy, i.e., the subject of a state with 
 which we are at war, cannot trade with us ; but an 
 alien friend can do eveiything in the way of trade 
 which a British subject can do, with the exception 
 that he cannot own British ships. 
 
 Certain traders are required to obtain licenses before 
 exercising their trades. They are — apothecaries, auc- 
 tioneers, brewers, brokers, chimney-sweepers, distillers, 
 game dealers, goldsmiths, marine-store dealers, patent 
 medicine sellers, pawnbrokers, playing-card makers, 
 pedlars, publicans, tobacco sellers, and vinegar makers. 
 In some of these cases the object is the public health ; 
 in some, the protection of the public revenue ; in one, 
 humanity ; whilst in some cases the reason for requiring 
 a license is not obvious. 
 
 Limited Liability. — In this place we may notice an 
 important disability which the state, acting through the 
 law-courts, formerly imposed on a certain form of 
 trading, but which is now removed ; a disability which, 
 whilst it existed, prevented, or at any rate checked and 
 obstructed, one of the most important factors in modern 
 industry — joint-stock enterprise. 
 
 When joint-stock undertakings were first established, 
 the courts of law insisted on applying to them the 
 doctrines and rules of procedure of the old law of 
 partnership, which, besides being cumbrous and utterly 
 inapplicable, made it essential that every shareholder 
 should be liable to the whole extent of his fortune for 
 
VI STATUTE OF FRAUDS 57 
 
 all the debts of the concern. This doctrine was modified 
 in the case of parliamentary companies by private Acts 
 of Parliament, and in some other cases by Royal 
 Charter. But it was not till the passing of a bill 
 introduced by Mr. Lowe in 1856 that full power was 
 given to joint-stock associations to incorporate them- 
 selves with a proper organisation, and with limited 
 liability. The act was extended to banks in 1858, and 
 the whole law was amended and consolidated in 1862. 
 Since the passing of these acts, all persons have been 
 able to organise themselves for any lawful purpose, and 
 to undertake commercial dealings with others on the 
 terms of either limited or unlimited liability on the part 
 of their members. From a parliamentary return in 
 1877 it appears that the paid-up capital of companies 
 registered under the Joint-Stock Companies Act ex- 
 ceeded £300,000,000. This is of course exclusive of 
 parliamentary companies, such as railway companies, 
 and also of companies formed under charters. 
 
 There is probably no feature in modern society which 
 has efiected so great a revolution in trade and industry 
 as joint-stock enterprise ; and this enterprise could 
 scarcely have existed under the fetters which the state 
 formerly imposed upon it. The case is extremely 
 interesting as an illustration of the important part 
 which the state may play in checking or developing 
 industry, and also of the mischief it may do, almost 
 without notice, by an impolitic restriction. 
 
 Statute of Frauds, 29 Car. II. ch. 3. — By this statute 
 any contract for the sale of goods for more than 
 £10 is void unless it is in writing and signed by the 
 parties or their agents, or unless there has been delivery 
 and acceptance of the goods, or of part of them, oi" 
 
58 THE STATE IN ITS RELATION TO TRADE CH. 
 
 payment or part payment by the buyer. The litigation 
 on this section has been very great. One judge is reported 
 to have said that every word of the section was worth 
 a king's ransom, and a second judge to have retorted 
 that every word had cost a king's ransom. I believe 
 that until quite recently every contract for the purchase 
 and sale of cotton sold at Liverpool was rendered in- 
 valid at law under this enactment, and that a very large 
 part of these contracts are still invalid. So difficult is 
 it for the state to interfere judiciously with mercantile 
 dealings ; and so ineffectual is the interference of the 
 state when it runs counter to the practice which buyers 
 and sellers, for their own convenience, adopt. 
 
 Statute of Limitations, 21 James I. ch. 16. — In the 
 absence of special stipulation to the contrary, an un- 
 executed contract would never be at an end ; the 
 obligation would remain hanging over the heads 
 of the parties for ever. It has therefore been the 
 policy of every civilised government to fix a period 
 beyond which it will give no assistance to enforce 
 contracts. In the case of contracts for the purchase 
 and sale of goods, this period was fixed by the statute of 
 21 James I. ch. 16, at six years, and this period of 
 limitation still remains. It is generally put by the 
 lawyers on the ground of the legal maxim, Interest 
 reipublicce ut sit finis litium ; but the more intelligible 
 ground is that it is not right that a man should remain 
 for an indefinite time the slave of an obligation which 
 there has been no attempt to enforce. 
 
 At the present time, when there is a constantly 
 growing tendency to curtail credit, when the steamship, 
 the railway, and the telegraph, have accelerated mer- 
 cantile operations, and when the period for which bills 
 
VI BANKRUPTCY 59 
 
 have to run is becoming shorter and shorter ; when a 
 number of wholesale transactions are completed at once 
 for cash ; when of retail transactions many, if not most, 
 are for ready money ; when many tradesmen's bills are 
 paid weekly, and few run for as long as a year — the 
 period of six years is much longer than is necessary. 
 For most of the transactions of daily life one year would 
 be ample, and if the effect of shortening the period were 
 in some instances to prevent credit from being given, 
 and in others to make the seller insist on earlier pay- 
 ment, the effect would be a very wholesome one. Here, 
 again, it is important to remember that the real inter- 
 ference of the state with freedom is where it enforces 
 contracts ; and that, when it refuses to insist on their 
 being performed, by that refusal it restores freedom. 
 
 Bankru2)tc9/.— (The Bankruptcy Act, 1869, 32 & 33 
 Vict. ch. 71, and Debtors Act, 1869, 32 & 33 Vict, 
 ch. 62, contain the present law on this subject.) Bank- 
 ruptcy, again, is a case in which the state refuses, under 
 certain circumstances, to follow the usual rule of en- 
 forcing individual contracts, and substitutes a special 
 mode of proceeding, the ultimate effect of which is 
 generally to free the contracting party from the ob- 
 ligations which he has taken upon himself. It is so 
 far like the Statute of Limitations that it is a restoration 
 of freedom, although upon certain stringent conditions. 
 The general features of the bankruptcy law are as 
 follows : — 
 
 When a man has incurred a number of debts and 
 is unable to pay them, he may be made a bankrupt. 
 The consequence is that all the property which then 
 belongs to him becomes divisible amongst his creditors, 
 and that if the court gives him a certificate of discharge — 
 
60 THE STATE IN ITS RELATION TO TRADE ch. 
 
 which it does unless a special case of misconduct is made 
 out against him — he is discharged from his obligations, 
 and left free to acquire and enjoy property and to begin 
 the world again. Special provision is made for punishing 
 fraudulent debtors, and, in cases where a debtor can 
 pay, but refuses to pay, there is still vested in the court 
 a power of imprisonment. But for mere debt with 
 inability to pay no man can be imprisoned. On these 
 general principles there is now no dispute, and they are 
 admitted as the foundation of every bankruptcy bill. 
 Nor is there now any real distinction of importance 
 between traders and other persons, or between bank- 
 ruptcy and insolvency : it is admitted that all debtors, 
 whether in what is called trade or not, must be subject 
 to the same law of debtor and creditor. 
 
 There has thus been a great advance since the time 
 when men charged with non-payment of debts were 
 imprisoned both on mesne process, i.e., before any 
 judicial sentence, and also after judgment; when our 
 gaols were full of debtors ; and when, unless a man was 
 what the law recognised as a trader, he could not, even 
 when discharged from prison, earn or acquii-e property 
 freed from his previous debts. We ought not to forget 
 this when we hear so many complaints against the 
 present law of bankruptcy. It is not likely that that 
 law will ever give entire satisfaction. Where a creditor 
 gets only half a crown or five shillings in the pound out 
 of what is due to him, he is not likely to think the 
 proceeding by which he gets it a satisfactory one ; nor 
 is it likely that any process of liquidation can be estab- 
 lished which will not waste much of the assets in 
 expenses. But the establishment of the principles — 
 that when a man is unable to pay his debts, his 
 
VI BANKRUPTCY 61 
 
 property should be divided among his creditors ; that 
 mere inability to pay should not carry with it penal 
 consequences ; that an innocent debtor should be free 
 to trade and acquire property again ; and that mis- 
 conduct in incurring debt should be distinguished from 
 mere insolvency, and should be punished accordingly 
 — shows that, whatever imperfections there still are in 
 the law of bankruptcy, real progress has been made 
 towards placing that law on a satisfactory footing. 
 
 There are however points of great importance in 
 which our bankruptcy law is still confessedly and 
 mischievously defective. These relate principally to the 
 collection and distribution of assets, and to the exposure 
 and punishment of culpable debtors. 
 
 An attempt was made in 1832 to collect and distribute 
 the assets of the bankrupt by official agency, under the 
 control of the court. This agency was at first successful, 
 but ultimately broke down, probably in consequence of 
 the want of that administrative supervision which a 
 court of law is not fitted to give. The collection and 
 distribution of assets was in 1869 handed over to the 
 creditors, without official, and even, in most cases, 
 without judicial control ; and the consequence is found 
 to be that, as it is not worth the while of the creditors 
 generally to spend time or trouble in looking after bad 
 debts, the management of the business falls into the 
 hands of a class of agents whose only object is to make 
 as much as they can for themselves out of it. 
 
 Again, in placing the collection of assets in the hands 
 of the creditors, no provision was made for enforcing 
 that part of the law which provided for the exposure 
 and punishment of fraudulent or otherwise culpable 
 dealings. Gross frauds and misconduct consequently 
 
62 THE STATE IN ITS RELATION TO TRADE ch. 
 
 escape censure and punishment, and are not even 
 brought to the notice of the court of bankruptcy, which, 
 like other courts of law, can only act upon charges and 
 evidence brought before it. 
 
 To remedy these evils it has been proposed in recent 
 attempts at bankruptcy legislation, to allow no debtor 
 to obtain the benefits of bankruptcy without public 
 inquiry and examination ; to give to the creditors the 
 assistance of an official agency, responsible to a minister 
 of the Crown, which shall aid, but not control them, 
 in managing, collecting, holding, and distributing the 
 assets ; and to intrust to the same official agency the 
 duty of inquiring whether the debtor has been guilty of 
 criminal misconduct, and, if he has, of bringing it 
 before the bankruptcy court with a view to the refusal 
 or suspension of his discharge or before the public 
 prosecutor, with a view to criminal proceedings. The 
 inquiry would be analogous in character to a coroners' 
 inquest, or to the more modern inquiries which now 
 take place into shipwrecks, and into railway and mining 
 accidents. If it is the duty of the state to inquire into 
 the causes of accidents which cause injury to life 
 and limb, it is at least equally necessary in a mercantile 
 country like ours to make inquiry into collapses of 
 credit which affect our national character, and often 
 bring want and misery into a thousand homes. 
 
 A further point of great interest in any new bank- 
 ruptcy scheme is the question of making some proceed- 
 ing analogous to bankruptcy applicable to the case of 
 workmen who have little or nothing but their weekly 
 wages, so that they may, in case of insolvency, be able 
 at moderate cost and on reasonable terms, to obtain 
 their discharge, and so that the sentences of imprison- 
 
VI BILLS OF SALE 63 
 
 ment which county court judges now inflict for wilful 
 non-payment of small debts, may be reduced within 
 the smallest possible compass. 
 
 Bills of Sale. — These are in form instruments by 
 which goods and chattels ai'e sold ; but as goods and 
 chattels are generally transferred and pass by delivery, 
 bills of sale are little needed for the purpose of actual 
 sale, and are generally used as securities for the advance 
 of money, the possession of the goods remaining with 
 the original owner, and the grantee having the right, in 
 default of payment of interest or principal, to seize, sell, 
 and realise. Under these circumstances the legislature, 
 in order to give notice of the real state of the owner- 
 ship, has long required bills of sale to be registered ; 
 and by a recent act, which purported to surround them 
 with additional precautions, bills of sale when duly 
 registered were made to take the property out of the 
 operation of those clauses of the Bankruptcy Act which 
 provide that goods left by the true owner in the 
 possession and apparent order and disposition of the 
 bankrupt, shall be treated as forming part of the debtor's 
 assets for the benefit of general creditors. The efiect of 
 this, coupled with other circumstances, appeal's to have 
 been very unfortunate. Bills of sale have multiplied 
 enormously ; the precautions which it was supposed 
 would secure needy persons against granting improvi- 
 dent bills of sale, have operated in the contrary 
 direction ; poor artisans have been victimised by money- 
 lenders ; and wholesale dealers and other creditors have 
 found that the goods on which they x'elied as belonging 
 to their debtor, and which in many cases they supplied 
 themselves on credit, were seized and carried ofiF under the 
 powers of a bill of sale, the existence of which they did 
 
64 THE STATE IN ITS RELATION TO TRADE ch. vt 
 
 not suspect. So difficult is it to interfere successful!}', 
 or foresee the consequences of interference. 
 
 Under these circumstances the legislature, by an Act 
 45 (k 46 Vict. ch. 43, passed in the session of 1882, after 
 full discussion before select committees of both Houses, 
 has, besides restoring the operation of the " order and 
 disposition " clauses of the Bankruptcy Act, provided 
 that no bill of sale is to convey after-acquired goods ; 
 and that no bill of sale is to be given for any sum less 
 than £30. It will be interesting to see whether these 
 provisions prove to be effectual in protecting helpless 
 persons, and in preventing fraudulent transactions ; 
 whether they will be found to be open to evasion ; and 
 whether they will hamper legitimate transactions. 
 
CHAPTER VII 
 
 THE STATE SETTLES THE TERMS IN WHICH CONTRACTS 
 SHALL BE made; AND DETERMINES, STAMPS, AND 
 ISSUES THE MEDIUM OP EXCHANGE 
 
 A FURTHER function of the state is to settle the terms 
 in which trading transactions are carried on. It does 
 this in two ways. First, it prescribes certain measures 
 of weight and size in which the quantities of articles 
 sold are to be described, and it gives the means of 
 ascertaining that these measures are accurate. Secondly, 
 it both determines, and stamps and issues, the money 
 in which the value of all goods bought and sold is 
 measured, and by means which, as a medium, they are 
 exchanged. The utility of this function is obvious. 
 In the simplest and rudest form of trading, one article 
 would be exchanged against another, without any 
 description or definition except such as would arise 
 out of the direct impression made by the particular 
 articles on the senses of the two parties. An apron- 
 ful of corn would be exchanged against an armful 
 of meat, or against a hewn tree or stone; but there 
 would be nothing by which the quantities of any of 
 these articles could be known, or by which, in the 
 
 F 
 
66 THE STATE IN ITS RELATION TO TRADE ch. 
 
 absence of the articles themselves, any of the parties 
 could tell what he was giving or getting. Nor would 
 there be any common measure of value to which each 
 could be referred. The person possessing the corn, and 
 wanting meat, wood, or stone, must wait until he could 
 find a person possessing the requisite piece of meat, or 
 of wood, or stone, and at the same time wanting corn, 
 and then the two parties must come together and 
 compare their respective articles by the use of their 
 unassisted senses. 
 
 Contrast this with the sale by the butcher of so 
 many pounds of beef at so many pence a pound ; the 
 purchase by the miller of so many bushels of wheat at 
 so many shillings a bushel ; or by the builder of so many 
 feet of timber at so many pence a foot. The facilities 
 of dealing in the latter case as compared with the 
 former are obvious. But these facilities would be 
 impossible if we did not know accurately and univers- 
 ally what was meant by a pound, and by a foot, and 
 by a bushel, and by a shilling, and by a penny : and in 
 order that they may be accurately and universally known, 
 they must be determined in such a way that all persons 
 must accept them, and this can only be done by the 
 authority of the state. It has therefore been admitted 
 in all civilised societies that the state must determine 
 measures of weight, size, and value. 
 
 The following passages are an excellent illustration 
 of the way in which barter of actual commodities 
 becomes a commercial exchange with a common measure 
 of value. They are extracted from a chapter in Butler's 
 Great Lone Land, giving a vivid picture of the scene at 
 one of the Hudson's Bay Company's settlements when 
 the Red Indians come to exchange their skins and furs 
 
VII BARTER OR EXCHANGE 67 
 
 and pemmican, for blankets and beads, guns and 
 ammunition. He says (p. 283) : — 
 
 " Money values are entirely unknown in these trades. 
 The values of articles are computed by ' skins ' ; for 
 instance, a horse will be reckoned at sixty skins, and 
 these sixty skins will be given thus : a gun, fifteen 
 skins; a capote, ten skins; a blanket, ten skins; ball 
 and powder, ten skins ; tobacco, fifteen skins, total 
 sixty skins. The Bull Ermine, or the Four Bears, or 
 the Red Daybreak, or whatever may be the brave's 
 name, hands over the horse and gets in return a 
 blanket, a gun, a capote, ball and powder, and tobacco. 
 The term 'skin' is a very old one in the fur trade; 
 the original standard, the beaver skin — or as it was 
 called ' the made beaver ' — was the medium of exchange, 
 and every other skin and article of trade was graduate^^ 
 upon the scale of the beaver ; thus a beaver or a skin 
 was reckoned equivalent to one mink skin, one marten 
 was equal to two skins, one black fox twenty skins, 
 and so on in the same manner, a blanket, a capote, a 
 gun, or a kettle, had their different values in skins." 
 
 Then, after describing the scene in which the dealing 
 takes place, he goes on : — 
 
 " Sometimes when the stock of pemmican or robes is 
 small, the braves object to see their 'pile' go for a 
 little pai'cel of tea or sugar. The steelyard and 
 weighing balance are their especial objects of dislike. 
 'What for you put on one side tea or sugar, and on 
 the other a little bit of iron?' they say; 'we don't 
 know what that medicine is. But look here, put on one 
 side of that thing that swings a bag of pemmican, and put 
 on the other side blankets and tea and sugar, and then 
 when the two sides stop swinging, you take the bag of 
 pemmican and we will take the blankets and the tea ; 
 that would be fair, for one side will be as big as the 
 other.' This is a very bright idea on the part of the 
 
 F 2 
 
m THE STATE IN ITS RELATION TO TRADE ch. 
 
 Four Bears, and elicits universal satisfaction all round. 
 Four Bears and his brethren are however a little bit 
 put out of conceit when the trader observes, 'Well, 
 let it be as you say. We will make the balance swing 
 level between the bag of pemmican and the blankets ; 
 but we will carry out the idea still further. You will 
 put your ruarten skins, and your otter and fisher skins 
 on one side ; I will put against them on the other my 
 blankets and my gun and ball and powder, then when 
 both sides are level you will take the ball and powder 
 and the blankets, and I will take the marten and the 
 rest of the fine furs.' This proposition throws a new 
 light upon the question of weighing machines and 
 steelyards, and after some little deliberation it is 
 resolved to abide by the old plan of letting the white 
 trader decide the weight himself in his own way, for 
 it is clear that the steelyard is a great medicine which 
 no brave can understand, and which can only be 
 manipulated by a white medicine-man." 
 
 Weights and Measures. — These are now determined 
 under the authority of the Weights and Measures Act 
 (1878, 41 and 42 Vict. chap. 49). In France, when 
 they adopted their convenient decimal system, they 
 endeavoured to found their ultimate standard on a 
 natural and unconventional basis by taking as their 
 metre a fraction of the circumference of the earth, 
 and they deduced all other weights and measures 
 from it, using a decimal system of division and multi- 
 plication. But as a matter of fact any such natural 
 basis is impracticable ; all ultimate standards must 
 be arbitrary ; and the French metre is only a par- 
 ticular piece of metal duly marked, which is kept in 
 Paris. The ultimate English standards consist of a 
 bronze bar on which a yard is maiked, and of a 
 platinum pound weight, kept in the Standards depart- 
 
vn WEIGHTS AND MEASURES 69 
 
 ment of the Board of Trade. These are called the 
 imperial standards. From this yard and pound four 
 exact copies have been made, of which one is kept at 
 the Mint, one at the Royal Society, one at the Obser- 
 vatory at Greenwich, and one is immured in the wall of 
 the Houses of Parliament. These are called the parlia- 
 mentary standards. Other copies of the yard and 
 pound have l?een made from these, and are kept as 
 practical standards for daily use at the Board of Trade. 
 From these two original measures, the yard and the 
 pound, all other legal weights and measures, whether 
 they denote weight, length, area, or capacity, are derived 
 by combination, multiplication and division. Standards 
 of all such physical weights and measures as are used in 
 trade are made and kept at the Board of Trade, and new 
 ones are added from time to time as the wants of trade 
 alter. They are kept in an office in Palace Yard which 
 was formerly part of the Old Palace at Westminster, 
 and which is not inappropriately devoted to what has 
 from time immemorial been a royal function. 
 
 Fi'om these Board of Trade standards of ordinary 
 weights and measures, further copies are made for local 
 use by the authorities of towns and counties, and these 
 local standards are from time to time verified by com- 
 parison with the Board of Trade standards. Inspectors 
 are appointed by the local authorities for their respective 
 districts, and it is their business to see that the weights 
 and measures used in trade are truthful and accurate, 
 and for this purpose to compare them with the local 
 standaids. 
 
 Every dealing in any article which is sold by weight 
 or measure must be made in one of the legalised 
 standards. Every publication of the prices of any such 
 
70 THE STATE IN ITS RELATION TO TRADE oh. 
 
 articles must be in the like tenns, and no weight or 
 measure is allowed to be kept for use in trade which 
 does not correspond in denomination with one of the 
 legalised Board of Trade standards. 
 
 I have said above that the universal knowledge and 
 use of weights and measures within the country is an 
 essential condition of their value, and a reason for 
 giving to the state the power of determining them. 
 Under the present circumstances of international trade 
 this is not sufficient, and a demand is arising for an 
 international system of weights and measures. Most 
 countries in Europe are adopting the French metric 
 system. In this country the only step we have taken in 
 this direction is to allow persons to make use of the terras 
 of the metric system in making contracts. But we do 
 not allow any physical metric weights and measures to 
 be kept for use in trade. A merchant may contract 
 to sell cloth or cotton by the metre instead of by the 
 yard ; but he may not keep a metre in his shop or 
 warehouse by which to measure it. This is absurd 
 and illogical enough. But so long as we retain 
 our own system, with the great variety of actual 
 weights and measures founded on the pound and yard 
 which the necessities of trade require, it would probably 
 lead to great confusion and even to fraud, were we 
 to add to the multitude of actual legal weights and 
 measures now in use the further number which would 
 be necessary in order to give practical effect to the 
 metric system. So long as our system differs from that 
 of our neighbours we are in a dilemma. Upon the 
 difficulty of changing our system it is unnecessary 
 to dilate. 
 
 Gold and Silver Money. — But the state not only 
 
vn GOLD AND SILVER MONEY 71 
 
 determines the terms in which the size and weight of 
 articles sold shall be described, it also stamps and 
 issues money, and in so doing both determines the 
 terms in which their value must be stated, Avhich, when 
 so stated, we know as price; and supplies, though not 
 at its own cost, the medium by means of which they 
 are bought and sold. 
 
 The following is the definition of money given in 
 Lord Liverpool's Coins of the Realm, and of the metals 
 of wliich it is made : 
 
 "The money or coin of a country is the standard 
 measure by which the value of all things bought and 
 sold is regulated and ascertained, and it is itself, at the 
 same time, the value, or equivalent, for which goods are 
 exchanged, and in which contracts are generally made 
 payable. In this last respect, money, as a measure, 
 differs from all others, and to the combination of the 
 two qualities before defined, which constitute the essence 
 of money, the principal difiiculties that attend it in 
 speculation and practice, both as a measure and an 
 equivalent, are to be ascribed. These two qualities can 
 never be brought perfectly to unite and agree ; for if 
 money were a measure alone, and made, like all other 
 measures, of a material of little or no value, it would 
 not answer the purpose of an equivalent. And if it is 
 made in order to answer the purpose of an equivalent, 
 of a material of value, subject to frequent variations, 
 according to the price at which such material sells at 
 the market, it fails on that account in the quality of a 
 standard or measure, and will not continue to be per- 
 fectly uniform and at all times the same. Civilised 
 nations have generally adopted gold and silver as the 
 material of their money because these metals are costly 
 and difficult to procure, little subject to variation in 
 value, durable, divisible, and easily stamped or 
 marked." 
 
72 THE STATE IN ITS RELATION TO TRADE ch. 
 
 Of the coins used in our currency the pound is the 
 real standard of value, and gold sovereigns are the only 
 coin which is legal tender for debts exceeding forty 
 shillings. The gold sovereign consists of a certain 
 fixed fraction of an ounce of pure gold with a certain 
 quantity of alloy. The essential function of the Mint 
 consists in seeing that its weight and purity are what 
 the law requires, and in stamping and issuing it so that 
 it may be known everywhere as certified by the Govern- 
 ment to possess these qualities. Beyond this the 
 Government does nothing to determine its value, which 
 is simply the value of that quantity of gold in the open 
 market. We often hear the Mint price of gold spoken 
 of, which is fixed by law at £3 17s. 10|c?. an ounce, and 
 this is apt to be confusing, since what we call " prices " 
 generally vary with supply and demand. But by the 
 Mint 2)rice of gold is only meant the quantity of sove- 
 reigns and fractions of a sovereign into which the Mint 
 divides the gold which is brought to it for coinage ; and 
 it is important to remember that by the shillings and 
 pence which form part of the Mint price are meant, not 
 given quantities of silver or bronze, but the fractions of 
 a gold sovereign which are known by these names. 
 The Mint price of an ounce of gold thus means simply 
 that an ounce in weight of gold is divided into three 
 whole sovereigns and ^Jths, and ^V^jyths, and 4^oth of 
 a gold sovereign. 
 
 But we could not be sure that the gold sovereign 
 would be of the value of the gold contained in it if the 
 Government had the power to increase or diminish the 
 quantity of sovei'eigns coined at their own discretion, 
 and thus to determine what quantity of currency the 
 people shall use. Tt is therefore made incumbent on 
 
vii THE MINT PRICE OF GOLD 73 
 
 the Mint to coin all the gold which is brought to it 
 for coinage, or which comes to the same thing, to give 
 for all the gold which is brought to it an equivalent 
 quantity of gold coins. The quantity of coins in 
 circulation must therefore depend entirely on the 
 demand for them, and not on the action of the Govern- 
 ment. If more coins are needed, gold is brought to 
 the Mint and turned into coins. If fewer coins are 
 needed, existing sovereigns are melted down and ex- 
 ported or otherwise used. The value of the coin must 
 therefore be that of the gold used in making it, with 
 nothing added but the value of the Government certifi- 
 cate of its weight and purity. It is this self-acting 
 character of the Mint which is the great safeguard of 
 the coinage. If it were in the power of the Govern- 
 ment to refuse to coin, they would be able to restrict 
 the coinage, and to add to its exchangeable value. If 
 they were able to alter the quantity and purity of the 
 metal contained in the sovereign, they would be able 
 to depreciate its value, as has in former times often 
 been done. In either case they would be able to de- 
 range markets and alter existing contracts which are 
 made in terms of the pound. The self-acting character 
 of the Mint operations reduces the function of the 
 state in issuing money to that of a verifier of weights 
 and measures. 
 
 With regard to the silver coinage the case is difierent. 
 It is not a legal tender for more than 40s. ; the value of 
 the coin measured in gold is rather more than the 
 value of the metal it contains. The Mint price of 
 silver is 5s. 6c?. an ounce, in other words, for an ounce 
 of pure silver the Mint gives 66c?. ; but the price of 
 silver in the market is now about 52c? an ounce, so 
 
74 THE STATE IN ITS RELATION TO TRADE ch. 
 
 that the value of the shilling is considerably more than 
 the market value of the silver of which it consists. 
 
 The silver coins are not therefore a standard of value 
 at all ; they are a token coinage, only used for small 
 transactions ; and when a silver coin is spoken of as 
 denoting the price of any article, what is meant by 
 it is the fraction of the gold sovereign to which it 
 corresponds. If we say that mutton is worth a shilling 
 a pound, we mean that a pound of mutton is worth 
 one-twentieth of a gold sovereign ; if we say that 
 wheat is 50s. a quarter, we mean that a quarter of 
 wheat is worth two gold sovereigns and a half. Under 
 this system the action of the Government in respect of 
 silver coins differs from its action in respect to gold coins. 
 In the case of gold coins, the Mint is obliged to coin 
 all the gold which is brought to it, or, which comes to 
 the same thing, to give gold coins for it — in short, to 
 turn all the gold brought to it into gold coins. In the 
 case of silver it is not under any such obligation, but 
 it is bound to make and give silver coin when demanded 
 in return for gold coin, to give twenty shillings in silver 
 for every gold sovereign presented to it. 
 
 The supply of silver coins needed for the retail 
 dealings of the country is easily effected through the 
 banks. When they find that their customers want silver, 
 they demand it through the Bank of England from 
 the Mint, and pay for it in gold coin. They have no 
 motive to ask for more than is really wanted by the 
 country as silver currency ; for the silver in the coins 
 would be worth less if melted down for use in the arts 
 or for exportation than it is worth as silver coin. The 
 Mint buy the silver needed to make the required coin and 
 make a profit by the difference between the market value 
 
VII GOLD AND SILVER STANDARDS 75 
 
 of the silver and the price in gold given for it. But 
 as they only issue it in accordance with the demands 
 made for it by the bankers, they have no power to 
 flood the market with silver coins or to depreciate its 
 value. Their function is therefore really automatic 
 in respect of silver as well as gold, and their real busi- 
 ness is to vei'ify the quality and quantity of the silver 
 and to make and stamp the coins accordingly. 
 
 In order that the Mint may perform its function of 
 verifying the quahty of the gold and silver used in 
 coinage, there must be a standard of quality. This is 
 found in certain plates of gold and silver — called the 
 pyx — which are kept with other standards by the 
 Board of Trade, and which are produced annually on 
 the trial of the pyx, when a jury of the Goldsmiths' 
 Company compare samples of the metal used by the 
 Mint in coinage with the standard plates. These 
 standard plates were formerly kept in a chapel opening 
 into the cloisters of Westminster Abbey, called the 
 Chapel of the Pyx, in which the king's treasiu'es used 
 to be stored, and on the door of which is still to be 
 seen a trace of the skin of a malefactor flayed alive 
 for trying to rob the king's treasury. The Board of 
 Trade wished to hand this chapel over to the Dean and 
 Chapter, within whose precincts it lies, but the late 
 Dean Stanley characteristically refused to receive it 
 on the ground that the retention of this interesting 
 spot in the precincts of the Abbey by a department of 
 the state which has to do with the regulation of trade 
 was a symbolic link in the relations of the state to 
 the Church. 
 
 What is true of silver is also generally true of the 
 copper, or rather, the bronze, coinage. The metal 
 
76 THE STATE IN ITS RELATION TO TRADE ch. 
 
 employed in the bronze coin is worth less than the 
 fraction of the gold sovereign which it is used to 
 express, and it is not a legal tender for more than 1 Id. 
 Tlie Mint issues it from time to time in different 
 districts, and contracts the issue when it is found to 
 be superabundant. 
 
 It will therefore be seen that gold is the sole ultimate 
 measure of value in this country, and that its value as 
 compared with other commodities is determined pre- 
 cisely in the same way as that of other commodities, viz., 
 by supply and demand ; in other words, it is the value 
 which people will give for it. The sole function of the 
 Government is to ascertain the quality and weight of 
 the gold, and to give it a stamp denoting that quality 
 and weight. Other coins are measured in gold, and do 
 not pass according to their own intrinsic or market 
 value ; they are tokens, not articles of commerce. The 
 function of the Government with respect to them is to 
 supply any number for which the corresponding price 
 in gold is given ; to verify the quantity and quality of 
 the metal they contain ; and to stamp them accordingly^ 
 
 Bimetallism. — As the question of bimetallism has 
 been much discussed of late, it may be well to mention 
 what is the meaning of it. It is obvious that tlie 
 selection of gold as the standard of value is arljitrary. 
 Most nations have selected either gold or silver as their 
 standard of value, and as the material for their princi- 
 pal coins, because, as above noticed, these metals are 
 scarce, and therefore possess a high value ; are easily 
 divisible ; are readily stamped and marked ; and are 
 comparatively indestructible. Some nations have pre- 
 ferred gold ; some have preferred silver ; some have 
 taken both. England, after many years' trial of both, 
 
vii BIMETALLISM 77 
 
 has now for a century and more adopted gold as the 
 sole standard of value ; and it has done so because it was 
 found, that when both gold and sOver were standards of 
 value, and when both could be coined to an unlimited 
 extent, people preferred to pay their debts in the metal 
 which was for the time the cheaper, and the dearer 
 metal was exported. At that time there was no arrange- 
 ment between nations for a common system of coinage or 
 common measure of value nor was any such arrangement 
 thought of as possible. 
 
 The bimetallists say that such a system is now 
 possible, and that many nations, especially those which 
 have silver as a standard of value, would be only too 
 glad to join England in a system which would fix the 
 relative values of gold and silver, and make both 
 metals equally the standard of value and the materials 
 of coinage. They appear to argue that the value of 
 the precious metals depends on the demand for them ; 
 that the principal demand for them is for purposes 
 of currency; and that governments can therefore, in 
 adopting them as currency, do for them what they 
 cannot do for other articles, viz. — create and regulate 
 the demand and fix their relative value. The advan- 
 tages they propose from bimetallism are as follows : — 
 First, that if we could have the two precious metals as 
 standards of value instead of one, the fluctuations of 
 each would be neutralised, and the standard of value 
 would be on the whole steadier than it is now. Secondly, 
 that the scarcity and consequent rise in the value of 
 gold, which under present circumstances there is too 
 much reason to apprehend, would be prevented if silver 
 could be brought to the aid of gold. Thirdly, that the 
 trade between gold-using countries and silver-using coun- 
 
78 THE STATE IN ITS RELATION TO TRADE ch. 
 
 tries would be made much easier if they had a common 
 standard of value, and if the fluctuations of value 
 between silver and gold could be eliminated. The 
 monometallists, on the other hand, urge the following 
 arguments : — First, that the suggested arrangement 
 between the nations is probably impracticable, and if 
 made, could not be relied on. Secondly, that if such an 
 arrangement could be made, it would at this time be 
 suicidal in England, which possesses an immense store 
 of gold, and to which large debts in gold are now owing, 
 to depreciate the value of her property and claims by a 
 measure which must raise the present low value of 
 silver as compared with gold. Thirdly, and principally, 
 that it would be impossible by any artificial law, 
 municipal or international, to tie together gold and 
 silver so that the value of the one measured by the other 
 should never fluctuate. The great merit of our present 
 monometallic system of coinage, they say, is, that it is 
 automatic ; that there is in it nothing arbitrary, nothing 
 which depends on the action of governments ; that the 
 value of gold is a matter of supply and demand, and 
 that upon this value the whole system is based, whereas 
 under the bimetallic system an attempt is made to fix 
 an arbitrary relation between the values of two metals 
 which have no natural dependence on or connection with 
 each other. Value, they say further, depends on the 
 two factors of demand and supply, and admitting that 
 governments may, in adopting one or both of the metals 
 as currency, have some control over the demand, the 
 control they thus possess is very incomplete and imper- 
 fect, whilst they have no control at all over the supply. 
 The monometallists urge in addition that the appre- 
 hended dangers of the monometallic system and advan- 
 
VII PAPER MONEY 79 
 
 tages of the bimetallic system are chimerical or 
 exaggerated ; that a rise in the value of gold, if it 
 takes place, or a fall in the value of silvei", will cause 
 no such change or inconvenience as is apprehended; 
 and that the inconveniences to trade arising from the 
 use of two different metals and from fluctuations in 
 their value, are as nothing compared with the incon- 
 veniences arising from other causes of fluctuation, 
 such as the use of paper money, or the constantly 
 recurring changes in the supply and demand of articles 
 of commerce, inconveniences, to which trade must 
 always be subject, and in spite of which it flourishes. 
 Under these circumstances, say the monometallists, it 
 would be madness to change a system which has 
 worked well, and is in accordance with the theory on 
 which our coinage is based ; and as they have in 
 addition to their arguments, the advantage of posses- 
 sion, it is not likely at present, at any rate, that the 
 advocates of bimetalhsm will make much way in this 
 country. 
 
 Paper Money. — A written or printed promise to pay, 
 issued by a banker and payable on demand, will, if 
 people trust the banker, perform many of the functions 
 of money. It is circulated like the coins which it 
 promises, and is received in payment of debts. Such 
 paper money, as it is called, has been the subject of 
 endless controversy. Whether it should be issued by 
 any one except the state or the agents of the state ; 
 what should be the lowest sum for which it should be 
 given ; whether it should in any case be inconvertible, 
 ■i.e., whether any such paper should be allowed to circu- 
 late for which the holder has not the right at any 
 moment to claim payment in coin ; and whether con- 
 
80 THE STATE IN ITS RELATION TO TRADE ch. 
 
 vertibility is a sufficient security against depreciation, 
 and also against excessive issue, are questions, some of 
 which are still unsettled. But all reasonable people are 
 satisfied that no such paper money ought to be incon- 
 vertible. To substitute for hard coin paper promises to 
 pay, is a mode of raising money to which nations in 
 difficulties are not unfrequently driven. But, like all 
 other attempts to make something out of nothing by 
 operation of law, such a step is sm^e to cause loss, con- 
 fusion, and inconvenience; and all nations retrace it, 
 often at considerable loss, as soon as they can afford to 
 do so. It is also, I think, generally admitted, at least 
 in England, that the issue of paper money, especially if 
 it is made a legal tender for the payment of debts, is a 
 proper function of the state, and that if any profit 
 is made by the issue it is a profit which should belong 
 to the state. 
 
 In England the issue of notes by bankers was long 
 since limited, in order to preserve the monopoly of the 
 Bank of England, and since 1821, the lowest sum for 
 which notes can be issued, whether by the Bank of 
 England or others, has been limited to £5. This limit- 
 ation does not however extend to Scotland or Ireland. 
 The bank note circulation is now governed by Sir R. 
 Peel's celebrated Act of 1844, 7 & 8 Vict. chap. 32.i 
 The principle on which these Acts were founded is that 
 paper money should only be issued by the state or the 
 agents of the state ; that paper money should not only 
 be convertible, but that it should vary in quantity in 
 the same manner and proportions as the metal which it 
 represents; and that for this purpose paper money 
 should only be issued against actual bullion lying in the 
 ^ For the Scotch and Irish Acts, see 8 and 9 Vict, chaps. 37, 38. 
 
VII PAPER MONEY 81 
 
 hands of the issuer. Out of regard for existing facts 
 and interests this theory was not strictly apphed. 
 Existing private bankers were allowed to continue their 
 previous amount of issues, but their notes are not legal 
 tender. The banking department and the issue depart- 
 ment of the Bank of England were separated. The 
 Bank of England, in consideration of a debt due from 
 the Government to the Bank, were authorised to issue 
 notes to the extent of £14,000,000, since somewhat 
 increased. This amount was taken as an amount below 
 which the paper in circulation, had never, even in times 
 of panic, been known to be reduced. Beyond this the 
 Bank must, for every note they issue, have gold or silver 
 bullion in their coffers. They are bound to give notes 
 for all gold brought to them, paying for it £3 17s. 9(i. 
 an ounce, instead of the Mint price of £3 17s. lOhd., so 
 as to remunerate them for the expense of the issue ; 
 and they are bound to pay the notes in full whenever 
 presented. Their notes are legal tender everywhere 
 except at their own counters. 
 
 The effect of this limitation of the paper currency on 
 commercial dealings has been the subject of endless 
 controversy, and the Act has three times been suspended, 
 once in the crisis of 1847, once in that of 1857, and 
 once again in 1866. On all three occasions the issue 
 department of the Bank placed at the disposal of the 
 banking department £2,000,000 of notes against the 
 same sum in consols, though on two occasions the bank- 
 ing department did not find it necessary actually to use 
 any of the excessive issue. On all those occasions the 
 suspension was successful in allaying panic. What has 
 happened before will no doubt happen again. If a 
 commercial panic should recur in which people are 
 
 G 
 
82 THE STATE IN ITS RELATION TO TRADE ce. 
 
 willing to trust Bank of England notes when they will 
 trust no other form of credit, Bank of England notes 
 will be created to meet the emergency, even if they 
 operate only as a cordial, and not as solid food. 
 
 But the controversy on the principles of the Act of 
 1844 has now slackened. Most economists, I believe, 
 now think that whatever importance is to be attached 
 to bank notes, and to their effect on prices and 
 speculation, and whether the principle of the Act of 
 1844 is sound or not, and whether the whole operation 
 is beneficial or not, the most effectual way of maintaining 
 a proper reserve of coin, and of checking an efflux of 
 gold which might lead to insecurity and panic, is to be 
 found in raising the rate of interest for loans of money 
 in due time, and in keeping that rate at a proper 
 amount. How far the Bank of England, which at one 
 time was able to control the rate of interest, and whose 
 action is still looked upon as indicating what the rate 
 of interest actually is, or is likely to be, or ought to be, 
 will, in the face of its numerous competitors, be able to 
 perform this useful function satisfactorily; and, if it 
 proves to be unable to do so, what organisation should 
 be substituted, are questions of much interest. They 
 are not entirely foreign to the subject of this treatise, 
 but are too speculative and too difficult to be discussed 
 here. 
 
 Demand for Currency. — This chapter is not complete 
 without pointing out the effect of growing population 
 and business on the demand for currency. On the one 
 hand, the enormous increase of purchases and of hired 
 services tends to raise the demand for, and consequently 
 to increase the value of, gold and silver. On the other 
 hand, the ingenuity of modern ti'ade is constantly 
 
VII DEMAND FOR CURRENCY 83 
 
 devising new substitutes for cash. Transfers of book 
 credits ; bills of exchange ; cheques ; telegraphic trans- 
 fers ; transfers of stocks and securities ; all the various 
 expedients for which our banking system affords 
 facilities; render the use of cash almost unnecessary 
 except in small and retail transactions^ and thus check 
 the increased demand for gold and silver coin which 
 would otherwise materially derange our standards of 
 value. 
 
 G 2 
 
CHAPTER VIII 
 
 ACTION OP THE STATE WITH RESPECT TO MONOPOLIES 
 AND PRICE 
 
 I HAVE shown that the state takes a part in every 
 trade transaction by compelHng the parties to it to 
 perform their bargains ; that it interferes farther to limit 
 this compulsion and to put an end to the bargains in 
 certain cases ; that it also prescribes the terms in which 
 they shall be made. But having done this, the broad 
 principle acted on in this country is that the state should 
 leave the parties to themselves. It does not confine the 
 sale of any article to any particular person, nor does 
 it attempt to fix prices. On the contrary, it carefully 
 avoids any attempt to create monopolies, and regards 
 prices and values as matters which can only be regulated 
 by demand and supply. 
 
 This was not always so, nor is it so now in all foreign 
 civilised countxnes. In former times there was an 
 assize which fixed the price of bread and ale in England. 
 The price of bread is or can still be fixed by law in 
 France : and in maiiy countries the governments still 
 possess the monopoly of certain articles, such as salt, 
 tobacco, and opium. 
 
 In former times the government of this country also 
 
CH. viii EXCEPTIONS AS TO STATE INTERFERENCE 85 
 
 claimed and exercised the right of restricting buying 
 and selling, by granting to particular persons monopolies 
 of the sale of particular articles. The abuse of these 
 grants reached such a pitch in the reign of Queen 
 Elizabeth as to raise great difficulties between the 
 Crown and the House of Commons, till the Queen, alive 
 to the danger of the situation, withdrew the most 
 obnoxious of her grants. In the reign of her successor 
 an Act was passed (21 James I. chap. 3) declaring all 
 such monopolies to be void, except patents for new 
 inventions. Since that time neither the Government nor 
 Parliament has ever attempted itself to exercise, or to 
 give to other persons by law, an exclusive right of pro- 
 ducing or selling anything, except in the case of patents, 
 and of the somewhat similar case of copyright, to which 
 further reference is made below. 
 
 In abstaining from granting monopolies the state 
 has also in general abstained from interfering with 
 prices. In the case of labour there are some exceptions 
 to this general rule of abstention on the part of the 
 state. Cab fares, watermen's fares, and pilotage rates, 
 are determined by law, even when the service is not a 
 monopoly, on the ground of simple convenience. The 
 advantages which miglft arise from the free competition 
 of the open market are not sufficient to counterbalance 
 the annoyance of standing in the street haggling with a 
 cabman, or the grievance of outrageous demands by a 
 local pilot on an ignorant and helpless stranger. But 
 except in such cases as these, and of the special cases 
 mentioned in Chapter X. where circumstances make 
 monopoly inevitable, and where the consumer must con- 
 sequently be protected against it, I am not aware of any 
 case in which the state prescribes or interferes with the 
 
86 THE STATE IN ITS RELATION TO TRADE ch. viii 
 
 price of an article sold in the ordinary course of trade. 
 Supply and demand are left to determine values and- 
 prices. Competition between sellers, and the self- 
 interest of buyers, insui-es a supply on reasonable 
 terms. 
 
 But there are, as I have said, exceptions, and I 
 proceed to consider them. 
 
 In two of these instances, those namely of patents 
 and of copyrights, monopolies (I use the word in no 
 invidious sense) are purposely created by the state. In 
 the third instance, that namely of certain joint-stock 
 undertakings, the monopoly is an accident arising not 
 out of the intention of the Legislature, but out of the 
 circumstances of the case. 
 
CHAPTER IX 
 
 PATENTS AND COPYRIGHT 
 
 Patents. — In the case of patents, the right of granting 
 an exclusive right of manufacture and sale was ex- 
 pressly reserved to the crown by the statute 21 James I. 
 chap. 3, which put an end to all other monopolies. 
 
 The prohibition of monopoly which is the main object of 
 the statute is not, under s. 6, to extend to " any letters 
 patent for fourteen years and under, for the sole work- 
 ing and making of new manufactures to the true and 
 first inventor, so that they be not contrary to law nor 
 mischievous to the State by raising prices of com- 
 modities, or hurt of trade, or generally inconvenient." 
 The mode of exercising the prerogative of granting 
 patents is now regulated by various statutes, the prin- 
 cipal of which is an Aot of 1852 (15 and 16 Vict, 
 chap. 83). Under these statutes the first term of 
 fourteen years may in special cases be extended by the 
 Privy Council for a term not exceeding fourteen years 
 beyond the termination of the original patent. 
 
 There has been much controversy in recent years upon 
 the principle of the patent law. Many eminent persons 
 have held, that in the present state of science and 
 manufactures, an exclusive right to make and sell any 
 
88 THE STATE IN ITS RELATION TO TRADE ch. 
 
 new invention and improvement operates as a clog to 
 progress ; that in each manufacture it is well known at 
 any given moment what are the improvements most 
 needed ; that hundreds of busy brains are at work to 
 supply them ; that it is a mere chance whether one 
 person or another is the first in the field ; and that to 
 give to A to-day an exclusive right for fourteen years to 
 a thing which B would have discovered to-morrow, is 
 unjust. They say further that continuous improvement 
 in some large and important machine or process which 
 is being made by the manufacturer, may be impeded or 
 stopped, if a patentee has got exclusive possession of a 
 single step or feature which is an essential, though only 
 a small, part of the whole machine or process, and which 
 the manufacturer, possibly himself ignorant of the 
 patent, may never think of patenting himself. 
 
 On the other hand, no less eminent men say, that 
 without patents there would not be sufficient stimulus to 
 invention ; they say further, that without patents there 
 would be no sufficient motive for capitalists to take 
 up and work a new invention, which is apt to be 
 disliked, because it bi'eaks in upon the practice of the 
 trade, and renders old plant and old habits useless. So 
 important, say they, is this consideration, that if a new 
 invention were thrown out into the street for anybody 
 to pick up and use, it would be worth the while of the 
 public to pick it up and make it the exclusive property 
 of some one person in order to induce him to make the 
 effort necessary to bring it into use. They say farther 
 that self-interest will always induce a patentee to spread 
 the use of his patent as much as possible, and that, as a 
 matter of fact, no improvements are really found to be 
 hampered or prevented by the existing law. 
 
IX PATENTS 89 
 
 It would be interesting in the face of these conflicting 
 arguments, to see the patent law tested in some one 
 critical and important case ; such, foi' instance, as that 
 of the electric light. If there should be the litigation 
 which has been threatened on this subject, and if it 
 should prove that some important invention, such as 
 the incandescent carbon lamp, is the exclusive property 
 of some one of the speculative companies who are 
 now competing wildly for the market, it will put the 
 existing law to a severe test. 
 
 But whichever of these two arguments is the better, 
 there is no doubt that at the present moment the argu- 
 ment which supports patents is the one which is in 
 favour with the public ; and the improvements which 
 are demanded in the patent law, and which will no 
 doubt be effected, are, greater simplicity, and smaller 
 fees. Many would be glad to add greater security, by 
 requiring the state to guarantee, when it grants the 
 patent, either the utility, or the novelty, of the inven- 
 tion, or both ; and thus to anticipate and prevent 
 subsequent litigation on these points before a court 
 of law, which, they say, is not so constituted as to 
 possess any adequate knowledge of technical and scientific 
 subjects. This however appears to be more than any 
 government could possibly undertake to do ; and the 
 result of attempting any such step would probably 
 be to mislead inventors, to select the wrong inven- 
 tions, to x'eject what would be useful, and generally to 
 hamper invention and trade. No government officials 
 can be competent judges either of the value of an inven- 
 tion, or, which is often equally difficult to determine, of 
 its novelty. 
 
 They who do not go this length wish to see the 
 
90 THE STATE IN ITS RELATION TO TRADE CH. 
 
 tribunals which try patent cases improved by the 
 addition of technical and scientific elements. 
 
 It should be added that the patent law only extends 
 to the United Kingdom. Each British colony has its 
 own separate patent law, and there is at present no 
 international arrangement on the subject of patents. 
 
 Copyright, or the exclusive right to make and sell 
 copies, is now a creation of statutes, the efiects of which 
 will be found in Sir J. FitzJames Stephen's Digest 
 attached to the report of the recent Copyright Commis- 
 sion. ^ Speaking generally, it is a right given by the state 
 to authors and artists to prevent other persons during 
 a certain fixed period from making copies and repetitions 
 of their works, so as to give to the authors and artists 
 all the profit that can be made by the exclusive sale of 
 the copies of their works during that period. 
 
 The controversies upon this subject have been endless, 
 and are not quite dead yet, one party claiming for the 
 author an absolute, indefeasible, and perpetual right to 
 control the reproduction or imitation of the products of 
 his brain ; the other party denying that any such right 
 exists or ought to exist at all. I have attempted to svim 
 up these arguments in an article in the Fortnightly 
 Review for December, 1878, and will not repeat them 
 here. The state has in this, as in most other countries, 
 cut the knot by giving the author the exclusive right of 
 reproduction for a certain limited period. In England 
 as regards books, it is either forty-two years from 
 publication, or the life of the author and seven years 
 afterwards, whichever is the longest. 
 
 With most European countries copyright treaties 
 have been made under wliich our authors possess in those 
 ' Sec Pari Paper, c. 2036, 1878. 
 
IX COPYRIGHTS 91 
 
 countries, and the authors of those countries possess in 
 our country, the same privileges in respect of copyright 
 as the native authors possess. In making these treaties, 
 English authors, or rather perhaps we should say, 
 English copyright owners, have been allowed to retain 
 as against their own books published with their own 
 consent abroad, the same privilege of exclusion from this 
 country which they possessed when all foreign editions 
 were piracies. The result is, so far as I know, perfectly 
 anomalous and unexampled in any other kind of trade. 
 The manufacturer of an English article of trade — for in 
 this connection we must look on a book as a manufacture 
 — is allowed to have, not only the exclusive production 
 of his article, but two or more separate exclusive rights 
 of production in different places, and to prevent what he 
 produces himself at one place from being sold in another 
 place. He is allowed to publish a cheap edition for the 
 foreign market, and to keep that cheap edition out of 
 the English market, which is reserved for the dear 
 edition of the English publisher. If I go abroad I may 
 buy English books published with the consent of the 
 English author by M. Tauchnitz and others at a very 
 moderate price ; but I am liable to be treated as a 
 criminal if I bring these books back into my own 
 country. "Cheap English books abroad, dear English 
 books at home," is the motto and result of this system. 
 
 But the foreign European market for English books 
 is a comparative trifle. The really serious questions for 
 English authoi"s, and, I may add, indirectly, for English 
 readers also, are those of copyright in the English 
 Colonies and in the United States. Our English copy- 
 right law extends in name to the whole of the empire, 
 but it has never been practically enforced in the English- 
 
92 THE STATE IN ITS RELATION TO TRADE ch. ■ 
 
 speaking colonies. Those colonies have always refused 
 to take expensive English editions, and in one form or 
 other have always had the benefit of cheap reprints. 
 This has been much complained of ; but it is not surpi'ising 
 that a colonist who can buy a cheap American reprint 
 for a few cents, should decline to pay thirty-one shillings 
 for a new novel, or sixteen shillings for an English 
 octavo. There has consequently been a constant struggle, 
 especially with Canada, which has resulted in the estab- 
 lishment of a separate copyright for English books in 
 that colony, under a special law passed for the purpose. 
 The English author can now, besides possessing his 
 imperial copyright, valeat quantum, in Canada, obtain 
 copyright in that country under a Canadian Act ; and 
 he can, as in the case of books which he publishes in 
 a foreign European country, exclude from England the 
 edition he publishes in Canada. The author and the 
 Canadian x'eader get the benefit of the wider market and 
 the cheaper prices, but the native Englishman is excluded 
 from them. 
 
 Still more important is the market of the United 
 States. That country has hitherto refused to enter into 
 any copyright treaty at all. The great publishers of 
 her eastern cities have up to a recent period had the 
 market in their own hands ; they have reprinted English 
 books, giving such remuneration as they pleased to the 
 author ; and have by arrangement between themselves 
 abstained from pirating from one another. But the 
 Union grows rapidly, and with it the demand for, and 
 the supply of books. Publishers have grown up in the 
 western and southern cities who publish their own cheap 
 editions of popular English books with as little regard 
 to New York and Boston as New York and Boston have 
 
IX COPYRIGHTS 93 
 
 hitherto paid to Paternoster Row. The consequence is 
 that the great eastern pubHsliers have recently found 
 their interest in promoting some form of international 
 copyright law by which they should, whilst retaining the 
 privilege of re-manufacturing English books in America, 
 be protected against western and southern piracies, and 
 there has consequently been some talk of a copyright 
 treaty on this basis. But this talk has come to nothing, 
 as indeed was to be expected, since it left out of account 
 the most important interest of all, viz. that of the great 
 American reading public. 
 
 It cannot be too often or too strongly urged that the 
 great obstacle to all arrangements with our own colonies 
 and with the United States, by which our authors might 
 reap the full benefit of an extended market, is the high 
 price at which first editions are published in this country. 
 A standard octavo volume, which costs perhaps about 
 3s. id. in print, paper and binding, ^ is published at 16s. 
 Till this practice of the trade is altered, English-speaking 
 communities across the Atlantic will refuse to put them- 
 selves into the fetters of a copyright law. There are 
 symptoms of Ijetter things. Many books, especially 
 those having something of a scientific or educational 
 character, are published, copyright or no copyright, at 
 moderate prices on both sides the Atlantic, and cheap 
 editions of popular works in this country are becoming 
 earlier and more frequent. The time may come when a 
 16s. octavo, or a 31s. novel, may appear as much out of 
 date as the quartos in which our fathers and grandfathers 
 
 ^ These were the figures, which, after careful inquiry, I laid 
 before the Copyright Commission ; and which, I believe, present 
 a fair average of cost, though it is of course very different in 
 different cases. 
 
94 THE STATE IN ITS RELATION TO TRADE ch. ix 
 
 read their first editions of Marmion or of the Decline 
 and Fall. 
 
 In every other branch of English trade and manufac- 
 ture, the principle which has led to such magnificent 
 results both for manufacturer and consumer, is that of 
 numerous dealings with small profits on each dealing, and 
 there is no reason why the same principle should not be 
 equally true and effective in the case of books. The 
 English-speaking and reading community is enormous, 
 and is growing as no other community grows. It 
 ought to give to English authors such remuneration 
 as literature has never yet received, and to readers 
 lower prices than have ever yet been paid for books, 
 and it must be the fault of bad laws or bad habits if 
 this is not the case. In any future arrangements 
 with our Colonies or with the United States, it is to be 
 hoped that this great end may be kept in view, and 
 that the different interests concerned, viz., the interests 
 of authors, of publishers, and of the reading public 
 in both countries, may all and each receive full and 
 fair consideration ; and that no one of these interests, 
 least of all that of the readers in this country, may be 
 sacrificed to the interest, real or supposed, of any other 
 class. That they are really the same at bottom, and 
 that the interests of all will be best consulted by the 
 utmost possible freedom compatible with a copyright 
 law, I fully believe. 
 
CHAPTER X 
 
 ACTION OP THE STATE IN THE MATTER OF CERTAIN 
 UNDERTAKINGS WHICH ARE TOTAL OR PARTIAL 
 MONOPOLIES 
 
 There is a large and constantly increasing class of 
 industrial undertakings, possessing privileges which give 
 them more or less the character of monoplies, and 
 which thus call for special regulation by the state. It 
 is a matter of speculative interest to ascertain what 
 these undertakings are, and what are the characteristics 
 which they possess in common, so that we may be able 
 to recognise and define them. It is a matter of more 
 practical interest to examine what steps have been taken 
 by the state to regulate them, and with what success. 
 
 General Character of these Undertakings. — It would 
 be difficult and probably fruitless to attempt to deter- 
 mine the character of these undertakings d, priori 
 or by way of deduction. The more satisfactory plan 
 is to take the several undertakings in detail, to ascertain 
 their several characteristics, and then to examine the 
 manner in which they have been dealt with. 
 
 The following is a tolerably complete list of these 
 undertakings : — Harbours and natural navigations, 
 canals, docks, lighthouses, roads, bridges and ferries. 
 
96 THE STATE IN ITS RELATION TO TRADE ch. 
 
 railways, tramways, gasworks, waterworks, the post- 
 office, and telegraphs. 
 
 In some of these, e.g., docks, railways, gasworks, and 
 telegraphs, competition has been attempted ; whilst 
 others have been monopolies from their commencement. 
 
 But in none of them has competition proved to be 
 completely successful. It is of great importance that 
 this point should be kept steadily in view, since it is 
 only in those cases which competition cannot fully 
 regulate, and so far as competition does not regulate 
 them, that the need for special state interference is felt. 
 
 Is there, then, any general characteristic by which 
 these undertakings, or others of a similar kind, may be 
 recognised and distinguished from undertakings which 
 are governed by the ordinary law of competition. 
 
 It is not large ccqntal, for though most of them 
 reqmre large capital, some gas and water companies, 
 which are complete monopolies, have capitals of not 
 more than two or three thousand pounds ; whilst other 
 enterprises, with enormous capitals, e.g., banks, insurance 
 offices, shipping companies, are not monopolies. 
 
 It is not positive law, for few of them have a mono- 
 poly expressly granted or confirmed by law ; and in 
 most, if not all, of the cases where such a monopoly 
 happens to have been so granted or confirmed, it would 
 have existed without such grant or confirmation. 
 
 They all agree in supplying necessaries. But this alone 
 is no test, for butchers and bakers supply necessaries. 
 
 Most, if not all, of them have exchosive possession or 
 occupation of certain peculiarly favourable p)ortions of 
 land, — e.g., docks, of the river-side ; gas and water com- 
 panies, of the streets. But this is only true in a 
 limited sense of such undertakings as the post-office, 
 
X TOTAL OR PARTIAL MONOPOLIES 97 
 
 telegraphs, or even of roads and railways ; and a mine, 
 a quarry, or a fishery, has equally possession of specially 
 favoured sites without generally or necessarily becoming 
 a monopoly. 
 
 The article or convenience supplied by them is local, 
 and cannot be dissevered from the possession or user of 
 the land or premises occupied by the undertaking. The 
 undertaking does ot produce an article to be carried 
 away and sold in a distant market, but a convenience in 
 the use of the undertaking itself, as in the case of 
 harbours, roads, railways, post-office, and telegraphs ; 
 or an article sold and used on the spot where it ia 
 produced, as in the case of gas and water. 
 
 Again, in most of these cases the convenience afforded 
 or article produced is one which can be increased almost 
 indefinitely, without proportionate increase of the 
 original plant ; so that to set up a rival scheme is an 
 extravagant waste of capital. 
 
 There is also in some of these undertakings, and 
 notoriously in the cases of the post-office, of telegraphs, 
 and of railways, another consideration, \dz., the para- 
 mount importance of certainty and harmonious 
 arrangement. In the case of most industries — e.g. in 
 that of a baker — it would be easier to know what to 
 do if there were one instead of several to choose from ; 
 but this consideration is in such a case not paramount 
 to considerations of cheapness. In the case of the 
 post-office and telegraphs, certainty and harmony are 
 the paramount considerations. The inconvenience would 
 be extreme if we had to consider and choose the mode 
 of conveyance every time a letter is despatched, or if a 
 telegram sent from any one station could not be 
 despatched to all other stations. 
 
 H 
 
98 THE STATE IN ITS RELATION TO TRADE cii. 
 
 The following then appeal' to be the characteristics 
 of undertakings which tend to become monopolies : — 
 
 1. What they supply is a necessary. 
 
 2. They occupy peculiarly favoured spots or lines of 
 land. 
 
 3. The article or convenience they supply is used at 
 the place where and in connection with the plant or 
 machinery by which it is supplied. 
 
 4. This article or convenience can in general be 
 largely, if not indefinitely increased, without propor- 
 tionate inci'ease in plant and capital. 
 
 5. Certainty and harmonious arrangement, which 
 can only be attained by unity, are paramount con- 
 siderations. 
 
 Mode of dealing with them. — The above conclusions are 
 neither as clear nor as complete as could be wished. 
 And though interesting in a speculative point of view, 
 they do not lead immediately to any important practical 
 consequence. But the further question in what manner 
 these undertakings ai-e dealt with — in what manner — 
 that is to say — the state endeavours to counteract the 
 evils of monopoly or privilege, is a question of great 
 practical interest, and one with which we are directly 
 concerned here. 
 
 There are two great alternatives. 
 
 (1.) Ownership and management by private enter- 
 prise and capital under regulation by the state. 
 
 (2.) Ownership and management by Government, 
 central or local. 
 
 In the former I include all cases in which those who 
 undertake the work derive personal gain from capital 
 which they invest in it ; and in the latter all cases, 
 whether of management by the central government, by 
 
X . MILL ON VOLUNTARY EFFORT 99 
 
 municipal bodies, by local boards, or by public trusts or 
 commissions, generally elective, in which no private 
 capital is invested, except by way of loan, and no 
 profit made by individuals. 
 
 Before entering in any detail upon the examination 
 of these two alternatives, it will be interesting to see 
 how they have been regarded by competent authorities 
 in this country and in France respectively. The follow- 
 ing are Mr. Mill's observations on this subject (^Political 
 Economy, vol. ii. chap. xi. s. 11) : — 
 
 "The third exception which I shall notice to the 
 doctrine that government cannot manage the affaii's of 
 individuals as well as the individuals themselves, has 
 reference to the great class of cases in which the indi- 
 viduals can only manage the concern by delegated agency, 
 and in which the so-called private management is, in 
 point of fact, hardly better entitled to be called manage- 
 ment by the persons interested, than administration by 
 a public officer. Whatever, if left to spontaneous 
 agency, can only be done by joint-stock associations, 
 will often be as well, and sometimes better done, as far 
 as the actual work is concerned, by the state. Govern- 
 ment management is, indeed, proverbially jobbing, 
 careless and ineffective ; but so likewise has generally 
 been joint-stock management. The directors of a joint- 
 stock company, it is true, are always shareholders ; but 
 also the members of a government are invariably tax- 
 payers ; and in the case of directors, no more than in 
 that of governments, is their proportional share of the 
 benefits of good management, equal to the interest they 
 may possibly have in mis-management, even without 
 reckoning the interest of their case. It may be ob- 
 jected, that the shareholders, in their collective 
 character, exercise a certain control over the directors, 
 and have almost always full power to remove them from 
 office. Practically, liowever, the difficulty of exercising 
 
 H 2 
 
100 THK STATE IN ITS RELATION TO TRADE ch. 
 
 this powei' is found to be so great, that it is hardly ever 
 exercised except in cases of such flagrantly unskilful, 
 or, at least, unsuccessful management, as would gener- 
 ally produce the ejection from oftice of managers 
 appointed by the government. Against the security 
 afforded by meetings of shai'eholders, and by their 
 individual inspection and inquiries, may be placed the 
 greater publicity and more active discussion and com- 
 ment, to be expected in free countries with regard to 
 affairs in which the general government takes part. 
 The defects, therefore, of government management, do 
 not seem to be necessarily much greater, if necessai-ily 
 greater at all, than those of management by joint-stock. 
 
 " The true reasons in favour of leaving to voluntary 
 associations all such things as they are competent to 
 perform, would exist in equal strength if it were certain 
 that the work itself would be as well or better done by 
 public officers. These reasons have been already pointed 
 out : the mischief of overloading the chief functionaries 
 of government with demands on their attention, and 
 diverting them from duties which they alone can dis- 
 charge, to objects which can be sufficiently well attained 
 without them : the danger of unnecessarily swelling the 
 direct power and indirect influence of government, and 
 multiplying occasions of collisions between its agents and 
 private citizens ; and the still greater inexpediency of 
 concentrating in a dominant bureaucracy, all the skill 
 and experience in the management of large interests, 
 and all the power of organised action, existing in the 
 community : a practice which keeps the citizens in a 
 relation to the government like that of children to 
 their guardians, and is a main cause of the inferior 
 capacity for political life which has hitherto character- 
 ised the over governed countries of the Continent, 
 whether with or without the forms of representative 
 government. 
 
 " But although, for these reasons, most things which 
 are likely to be even tolerably done by voluntary associ- 
 ations, should, generally speaking, be left to them, it 
 does not follow that the manner in which those associ- 
 
X MILL ON VOLUNTARY EFFORT 101 
 
 ations perform their work should be entirely uncontrolled 
 by the government. There .are many cases in which 
 the agency, of whatever nature, by which a service is 
 performed, is certain, from the nature of the case, to 
 be virtually single ; in which a practical monopoly, with 
 all the power it confers of taxing the community, cannot 
 be prevented from existing. I have already more than 
 once adverted to the case of the gas and water com- 
 panies, among which, though perfect freedom is allowed 
 to competition, none really takes place, and practically 
 they are found to be even more irresponsible and un- 
 approachable by individual complaints than the 
 government. There are the expenses without the 
 advantages of plurality of agency ; and the charge 
 made for services which cannot be dispensed with, is, 
 in substance, quite as much compulsory taxation as if 
 imposed by law : there are few householders who make 
 any distinction between their ' water rate ' and their 
 other local taxes. In the case of these particular ser- 
 vices the reasons preponderate in favour of their being 
 performed, like the paving and cleansing of the streets, 
 not certainly by the general government of the state, 
 but by the municipal authorities of the town, and the 
 expense defrayed as even now it in fact is by a local 
 rate. But in the many analogous cases which it is best 
 to resign to voluntary agency, the community needs some 
 other security for the fit performance of the service than 
 the interest of the managers ; and it is part of the 
 government either to subject the business to reasonable 
 conditions for the general advantage, or to retain such 
 power over it that the profits of the monopoly may at 
 least be obtained for the public. This applies to the 
 case of a road, a canal, or a railway. These are always, 
 in a great degree, practical monopolies ; and a govern- 
 ment which concedes such monopoly unreservedly to a 
 private company, does much the same thing as if it 
 allowed an individual or an association to levy any tax 
 they chose for their own benefit on all the malt pro- 
 duced in the country, or on all the cotton imported into 
 it. To make the concession for a limited time is gene- 
 
102 THE STATE IN ITS RELATION TO TRADE cu. 
 
 rally justifiable, on the principle which justifies patents 
 fur inventions ; but the state should either reserve to 
 itself a reversionary property in such public works, or 
 should retain, and freely exercise, the i-ight of fixing a 
 maximum of fares and charges, and from time to time, 
 varying that maximum. It is perhaps necessary to re- 
 mark, that the state may be the proprietor of canals or 
 railways without itself working them; and that they 
 will almost always be better worked by means of a 
 company renting the railway or canal for a limited 
 period from the state." 
 
 The following is an extract from an article on mono- 
 polies in the French Dictionnaire d'Eco7iomie Politique. 
 (Coquelin et Guillaumin, Paris, 1854, vol, ii., art. 
 Monopolies, p. 224) : — 
 
 " In France the initiative and direction of these 
 works (i.e. harbours, internal navigations, roads, bridges, 
 railways) belongs to the central authority, acting by 
 means of a numerous and expensive body, the en- 
 gineers of roads and bridges [ingenieurs des jyonts et 
 chaussees). Most of the great channels of communica- 
 tion are established at the cost of the public, according 
 to the schemes or designs of these engineering ofiicials ; 
 the schemes which are started independently of them 
 are subjected to their control ; and it scarcely ever 
 happens that such schemes are accepted by the authori- 
 ties against their advice. The result of this reyime is, 
 that in respect of works of this character the spirit of 
 enterprise is wholly discouraged, and that scarcely any- 
 thing is accomplished except at the instance and by the 
 impulse of the body of oflicial engineers, an impulse 
 which, for I'easons which we have given under the title 
 ' Fonctionnaires,' is incomparably less powerful and less 
 fertile than that of free industry. Thus, none of the 
 great improvements in artificial channels of communica- 
 tion or in means of transport which have been intro- 
 
X FRENCH MONOPOLIES 103 
 
 duced within the last fifty years, have originated in 
 France — macadaniisation of roads, railroads, locomo- 
 tives, suspension bridges, steamboats, &c., all are the 
 work of the free and independent engineers of England 
 .or America. The monopoly of our official engineers is 
 as little adapted to improve and utilise inventions as to 
 start them. And although our country is one of those 
 in which industry is most highly developed, and in 
 which a multiplicity of the most perfect channels of 
 communication — e.r/., of railways — is the most neces- 
 sary, we have remained in this respect far behind 
 the United States, England, Belgium, &q. A further 
 result of the French system is that the channels of 
 communication are distiibuted over the country without 
 any real proportion to the wants of its several districts, 
 and that their expense, instead of being supported, as 
 in England, by tolls levied on those who use them, and 
 in proportion to the use they make of them, falls, with- 
 out reference to the service rendered, on all contributors 
 alike." 
 
 It is obvious that the two writers have been influenced 
 in the above observations by the different modes in 
 which these enterprises have been developed in the 
 two countries. The English philosopher has been struck 
 by the evils arising from the English practice of 
 granting unrestricted monopolies to private persons. 
 The French writer, on the other hand, has been more 
 alive to the want of enterpi^ise which has followed upon 
 the French practice of leaving such undertakings to be 
 originated by government. The observations of both 
 writers are undoubtedly just, each from his own point 
 of view ; and any consideration of the subject is im- 
 perfect which does not take both elements into full 
 consideration. 
 
 Shortly stated, the following are the arguments in 
 
104 THE STATE IN ITS RELATION TO TRADE cii. 
 
 favour of government or public management, and tliey 
 are no doubt extremely strong : — 
 
 1. Joint-stock management, as Mr. Mill points out, 
 has by no means the advantages in energy and self- 
 interest over public government which enterprises 
 managed by individuals have. 
 
 2. There is greater unity in management and certainty 
 in use. 
 
 3. The public get the benefit of any profit, either in 
 reduction of price or in relief of taxation ; consequently 
 the interests of the producers and consumers are the 
 same, and there is not the same temptation either to 
 excessive charges or to needless investment of capital, 
 as there is in the case of joint-stock companies. 
 
 On the other hand, we must not forget that if joint- 
 stock companies have some of the disadvantages, they 
 have also some of the advantages of government manage- 
 ment. The chairman and officers of some of the great 
 joint-stock companies have a pride in the well-doing of 
 their undertaking similar to that of a public adminis- 
 trator, or a zealous town clerk. Again, government 
 management is proverbially sluggish, and is open to 
 parliamentary and municipal jobbing. It is also liable 
 to be influenced by sentiment and impulse rather than 
 by a cool consideration of the wants to be supplied, 
 and thus is not unlikely to select wrong fields for its 
 energy. 
 
 But a far more important argument against com- 
 mitting all these undertakings to government is, that 
 capital will find its own way and do what is wanted ; 
 and government, whether general or local, will not. 
 
 This is principally due to the activity which individ- 
 uals display in seeking their own profit as compared 
 
X STATE UNFITTED FOR CERTAIN ENTERPRISES 105 
 
 witli tlie sluggishness of public governing bodies. To 
 this action of individual interest sjjecial circumstances 
 have in the course of the last and the present centuries 
 largely contributed. The history of personal rights and 
 property has, as Sir H. S. Maine tells us, been one of 
 constant development, and in earlier periods of our 
 history, the community, as compared with the individual, 
 played a larger part than at present. Accordingly, the 
 earliest of the undertakings we are speaking of, e.g., 
 the maintenance and improvement of our natural 
 harbours and navigations, and the oldest of our roads 
 and bridges, were originally managed by public bodies. 
 Towards the end of last century and the beginning of 
 this, various circumstances contributed to effect a 
 change. In public opinion, and in the eye of the law, 
 the weight attached to personal rights had become 
 greater. PoHtical economy taught the superior energy 
 of individual enterprise. Capital accumulated and was 
 seeking investment. Our laws of partnership, too, 
 were altered, so as to enable the capital of many 
 individuals to be united for a single purpose. And, 
 lastly, engineering science made gigantic strides, and 
 opened out the way for industrial undertakings such 
 as the world had never seen before. Hence, for the 
 last hundred years, the current has set in the 
 direction of private enterprise, and by this means the 
 country has been supplied with necessaries and con- 
 veniences which public management would never have 
 afforded. 
 
 Of late there has been somewhat of a reaction ; there 
 is now a disposition to strengthen and improve local 
 and municipal institutions, and to invest them with 
 wider functions. It seems probable, too, that this 
 
lOG THE STATE IN ITS RELATION TO TRADE ch. 
 
 movement will increase. But it will be long before it 
 does for us what private enterprise has done and is 
 doing. 
 
 There are too, certain enterprises for which it is 
 peculiarly unfitted, enterprises namely which involve 
 scientific experiment, and which depend for their 
 financial success upon the results of those experiments. 
 Such enterprises are necessarily speculative, and it is 
 undesirable for many obvious reasons that a Govern- 
 ment, whether of a country or of a town should embark 
 upon them. A government ought not to seek excessive 
 profit, or run the I'isk of serious loss. A government 
 is, from the nature of its organization, peculiarly un- 
 fitted to display the flexibility and the facility of 
 resource necessary for successful experiments. The 
 failure of a speculation in the hands of private persons 
 is a mere private loss. The failure of a speculation in 
 the hands of a government is an injury to its character. 
 For these reasons it is not desirable that a government, 
 whether general or local, should take upon itself any 
 description of trade, manufacture, or service, until 
 the process to be employed has been ascertained by 
 experience, and until the financial success of the under- 
 taking and the conditions under which it can be carried 
 on are determined and known. 
 
 Whilst, however, private enterprise has done so 
 much for us, it must be admitted that there has been 
 little thought or foresight about the ultimate results of 
 the huge monopolies we have been creating. The few 
 conditions by which Parliament has sought to restrict 
 them have often been useless, and, occasionally, worse 
 than useless. 
 
 These general obserxations will be best ilUist rated 
 
X HARBOURS AND CANALS 107 
 
 and supported by a glance at the history of the several 
 undertakings to which we have refei-red. 
 . 1. Harbours and Natural Navigations. — The improve- 
 ment of these were among the first of large public 
 works. They originated before the era of joint-stock 
 companies, and, with the exception of a few small 
 harbours owned by large landowners, are, and always 
 have been, in the hands of some public body, i.e., either 
 of a municipal corporation, or a public trust, or com- 
 mission, and not of profit-making companies. 
 
 An evil of considerable magnitude has arisen in cases 
 where the public body exercising this power is no 
 longer the representative of the trade which uses the 
 harbour, as for instance, where the town of Liverpool 
 owned the Liverpool docks. In such cases the locality 
 is too apt to tax the trade of the country for its own 
 benefit. But even in cases such as these, the sea — 
 greatest of free traders — generally limits the growth of 
 the evil. If taxes are too high at one port, ships can, 
 in most cases, seek another. 
 
 2. Canals. — These were amongst the first products of 
 the new engineering era, and have been, and now are, 
 almost entirely in the hands of joint-stock companies. 
 They have, however, been generally superseded or 
 swallowed up by railways, and are now of compara- 
 tively little importance. But for this we should 
 probably have heard many complaints of their profits 
 and charges. 
 
 At the present moment there is a movement in their 
 favour, and an attempt to set them up again as rivals 
 to railways. For certain classes of goods where speed 
 is of no importance they may yet be useful ; and 
 they have the advantage of being roads on which all 
 
108 THE STATE IN ITS RELATION TO TRADE ch. 
 
 cari'iers can compete. But the total inadequacy of the 
 existing canal system to the present traffic of the 
 country ; the difficulty of extending it ; and the impossi- 
 bility of carrying upon it with the speed which modern 
 trade requires — not to mention the fact that half the ex- 
 isting canals are in the hands of railway companies — all 
 render it impossible to look to the system of internal 
 canals as more than a subsidiary mode of conveyance. 
 
 3. Docks were also an early product of the engineer- 
 ing era, and, consequently, they were often made in the 
 first instance by private capital. From the limited 
 area in each port available for docks, they are often, so 
 far as the port itself is concerned, complete monopolies. 
 But the sea, as we have said, is the greatest of free 
 traders. The rivalry of other ports generally prevents 
 any very bad eflfect from a dock monopoly, and rouses the 
 trade of the port to put a stop to it when it becomes 
 oppressive. Partly for this reasonj and partly because 
 it has been found that rivalry in the same port between 
 competing dock and harbour authorities creates con- 
 fusion, difficulty, quarrels and expense, whilst har- 
 monious arrangement is of paramount importance to 
 trade, the tendency for the last twenty years has been 
 to hand ov^er the management and construction of docks 
 to local trusts representing the whole interests of the 
 port and making no profit. Thus docks made by 
 private companies at Sunderland, Liverpool, and Birken- 
 head, have been in late years handed over to public 
 trusts ; whilst at Newcastle and Shields, at Glasgow and 
 Greenock, at Dundee, Leith, Belfast, and Aberdeen, 
 and other ports, docks recently made have been con- 
 structed and are managed by public bodies representing 
 the dock ratepayei's. 
 
X LIGHTHOUSES— ROADS 109 
 
 4. Lighthouses have now, for some years, been marie 
 by the governments of all civilised countries. But in 
 England, which was the first to build them, many of 
 them were originally granted by the Crown to private 
 persons with power to take tolls : and it is only since 
 1830 that the lighthouses so granted have been bought 
 up and placed under public control. Even now the 
 coasts of Turkey are lighted by a French joint-stock 
 company, and there are complaints of its charges and of 
 the profits it is said to be making. 
 
 On the proper mode of managing lighthouses there is 
 little to be said. It is admitted on all hands that they 
 must be in the hands of a central authority, and ought 
 not to be a matter of profit to private persons. 
 Whether they should be paid for in the shape of tolls 
 on ships, or by the public exchequer, does not seem to 
 be a question raising any important issue of economical 
 principle. In both cases they are paid for more or less 
 directly by the general consumer ; in the one case, 
 through the medium of freights — in the other, more 
 directly by general taxation. The former plan has the 
 practical advantage of affording a good test of the 
 value of any proposed new works, in the willingness or 
 unwillingness of the shipping interest, who are the 
 immediate payers, to saddle themselves with the neces- 
 sary tolls. 
 
 5. Roads. — These were originally made by the local 
 authority, i.e., by the parish. But under the demand 
 for channels of through communication to be used by 
 wheeled vehicles, and with the engineering improve- 
 ments of the last century, the system of turnpike trusts 
 grew up, a system under which private capital was 
 obtained in the shape of loans secured upon tolls, and 
 
no THE STATE IN ITS RELATION TO TRADE ch. 
 
 the management placed in the hands of a body of 
 trustees, partly public, partly private. The tendency 
 of late years has been to do away with this system — to 
 improve highway boards — to place the whole of the 
 roads under their management — to abolish turnpike 
 tolls, and to pay expenses out of rates. The importance 
 of turnpike trusts is diminishing yearly — partly for the 
 above reason, partly on account of t^e transfer of 
 through traffic to railways. The number of turnpike 
 trusts, in England and Wales, according to the last 
 published return,^ was 248 ; their income £218,478, and 
 their capital debt £581,080 — a mei'e flea-bite compared 
 with joint-stock company capital — and annually de- 
 creasing. 
 
 The mileage of roads in England and Wales maiii- 
 tained out of rates is 115,773; the income £1,929,310, 
 and the expenditure £1,895,001.2 
 
 Under these circumstances the management of roads 
 calls for no special observation. Turnpike tolls are a 
 nuisance ; but they are in a fair way to be abolished, 
 and all the roads in the kingdom are likely soon to be 
 in the hands of local authorities and supported by 
 local rates. One effect of the change seems likely to 
 be that the old turnpike roads or through channels of 
 traffic will be less well kept up than they were under 
 the old system, whilst the more local roads and cross 
 roads, in which the local managers are interested, will 
 be improved. 
 
 6. Bridges and Ferries. — These form part of roads, 
 and have been similarly dealt with, except in certain 
 special eases, such as the bridges over the Thames 
 
 1 Pari. Paper, C— 2966 of 1881. 
 
 2 Pari. Paper, C— 3274 of 1882. 
 
X r,RIDGF:.S, FERRIES, RAILWAYS, TRAMWAYS 111 
 
 which, as wo know, laave been originally built by 
 private enterprise on the security of tolls, and which 
 are now gradually being bought up by public bodies. 
 It is not likely that many more bridges will be con- 
 structed on this principle. But if they are, it is 
 obviously desirable that the concession should be for a 
 limited term, and that in no case should it be accom- 
 panied, as has too often been the case, with a prohibition 
 to set up another bridge or ferry within a certain 
 distance, whixjh, of course, has the effect of conferring a 
 strict legal monopoly. 
 
 7. Bailways. — These have all been made since the 
 setting in of the engineering and joint-stock era, and 
 are in the hands of joint-stock companies. They are 
 the great example, for good and for evil, of the joint- 
 stock system. The subject of railways alone, if ex- 
 haustively treated, would far exceed the limits of this 
 treatise. It is so important that I have made it the 
 subject of a separate chapter,^ and only refer to it here. 
 
 8. Ti'amways. — These are almost a comparatively new 
 enterprise, and the legislature in dealing with this 
 subject has had the benefit of the experience of the 
 difficulties which have been felt in the case of railway 
 and gas and water companies. By the General Tram- 
 ways Act,2 1870, Parliament gave to the municipal 
 authorities facilities for constructing tramways them- 
 selves, in priority to companies, and for charging the 
 expenses on rates ; whilst it also subjected the con- 
 cessions which might be made to tramway companies to 
 new and unprecedented conditions. 
 
 In the first place, the concession is not to be made to 
 a company if the municipal authority chooses to under- 
 1 See Chap. XII. - 33 k 34 Vict. c. 78. 
 
112 THE STATE IN ITS RELATION TO TRADE ch. 
 
 take the work ; and then only with the consent of the 
 municipal authority, and under such conditions as it 
 may impose. When the tramway is opened, if it is not 
 so worked as to give the public the full benefit of it, 
 licences to use it on payment of certain tolls may be 
 granted to other persons by the Board of Trade. When 
 the promoting company have had the use of the tram- 
 way for twenty-one years, the municipal authority may 
 purchase it at the then actual value of the permanent 
 plant, without any payment in respect of profits or 
 compensation for compulsory sale, such value to be fixed 
 by a Government referee. 
 
 According to the Parliamentary return for 1881 ^ 
 the total number of tramway undertakings author- 
 ised under this act is 122. The capital authorised 
 is £10,906,575, the capital expended £6,939,285, 
 and the number of miles open 488. The number of 
 these undertakings made by municipal authorities is 24, 
 with an authorised capital of £1,787,462 and an 
 expended capital of £1,075,686. The number made by 
 joint-stock companies is 98, with an authorised capital 
 of £9,119,113, and an expended capital of £5,864,152. 
 This shows how active private capital is in promoting 
 new undertakings when compared with representative 
 governing bodies. 
 
 9. Gas- Works. — The case of gas supply is peculiar, since 
 gas manufacture has reached a high state of develop- 
 ment and success ; and the complete effect of the 
 attempts Parliament has made to control the monopoly 
 is better seen than in cases where profits are still small. 
 In many cases the dividends have become so large that 
 the public are painfully aware of the conflict of interest 
 1 Pari. Taper, 404 of 1S81. 
 
X GAS-WORKS 113 
 
 between themselves and the shareholders ; and, on the 
 other hand, in certain large places, prudent municipali- 
 ties have made a good thing for the ratepayers out of 
 the supply of gas. 
 
 There is one case — viz., Manchester — in which the 
 gas-works have been originally established by the 
 municipality, and there may be others. There are 
 many cases in which works originally established by a 
 company have been subsequently bought by the munici- 
 pality, and these cases are on the increase ; but how few 
 they are, in comparison to the cases of gas-works still 
 owned by companies, may be seen from the following 
 figures. The total number of gas companies in England 
 and Wales, according to the Parliamentary return i 
 of 1881, is 336, with an aggregate authorised capital of 
 about £41,500,000. In the metropolis there are four 
 gas companies, with a capital of £13,000,000.^ Besides 
 these, there are a certain number of public gas works in 
 the hands of private persons ; and against this number 
 of private enterprises there are 136 cases in which the 
 municipal authority is the owner of the gas-works. 
 
 The history of gas supply is so instructive that it is 
 worth while to give some details concerning it. When 
 gas was first introduced the manufacture was a novelty 
 and a risk ; and even now it is an expensive thing to 
 establish gas-works where the population is small and 
 scattered. But the manufacture improves, and costs 
 less and less in proportion to the supply as it gets larger ; 
 whilst, as population grows, there is an increased 
 demand. Consequently, prices which are just when the 
 concern begins become too large after a few years, and 
 
 Pari. Paper 315 of 1881. 
 Pari. Paper 259 of 1882. 
 
 I 
 
114 THE STATE IN ITS RELATION TO TRADE ch. 
 
 then begins a struggle between the consumers and the 
 companies. In London an attempt was made to meet 
 this by competition; and for some years the streets 
 were pulled up by rival companies endeavouring to out- 
 bid each other. This was found to be such a nuisance 
 that London was " districted " between the companies by 
 Act of Parliament, thus giving each of them a legal 
 monopoly. The districts allotted to the several com- 
 panies were determined, not so much by the wants of 
 the town as by the circumstances of the companies ; and 
 the consequence is that there has been until lately an 
 extravagant division and distribution of manufacture 
 and supply. Amalgamation has however been encouraged 
 by recent legislation, and in London there are, or shortly 
 will be, only two great companies, one north and the 
 other south of the Thames. 
 
 Under the General Act of 1847,^ there are no pro- 
 visions for testing the power and quality of gas supplied 
 to the consumer ; those contained in the London Act of 
 1860,2 proved ineffectual; and more effectual provisions 
 were introduced, by the Act of 1868,^ and subsequent 
 Acts. This is a matter in which the difficulty is of a 
 technical rather than of a financial or economical char- 
 acter, and the attempts to meet it have been attended 
 with some success. This is more than can be said of 
 most of the attempts which have been made to control 
 price. Until recently the main, and almost the only, 
 condition on which the legislature has relied for pre- 
 venting the public from being placed at the mercy 
 of the gas companies was its favourite panacea of 
 limiting profits. It was provided by the General Act 
 
 ' 10& 11 Vict. cap. 15. 
 - 23 & 24 Vict. cap. 125. » 31 & 32 Vict. cap. 125. 
 
X GAS-WORKS 115 
 
 concerning g;is companies that each company was to be 
 satisfied with a 10 per cent, dividend, besides making 
 up past dividends to 10 per cent., and setting aside a 
 reserve fund to secure future dividends at the same 
 rate ; and that if any company divided more than this 
 amount of profit, a court of justice might reduce the 
 price of gas to such an amount as would bring down their 
 profits to the above limit. 
 
 Now, in the first place, to suppose that any court of 
 ■justice can constitute itself a judge of the price whicli 
 will produce a certain profit and no more, is absurd ; 
 and the more elaborate provisions of some of the recent 
 London gas acts, which entrusted this delicate operation 
 to more competent hands, have proved a failure also. 
 No Government Department, or scientific commission 
 appointed by Government, can undertake to say to a 
 manufactui'er, " At such and such a price you can manu- 
 facture an article which shall produce you exactly 10 
 per cent, dividend — no more, and no less." To do this 
 requires all the knowledge, skill, and constant experi- 
 ence of the manufacturer himself ; and no one but him- 
 self can tell what capital he needs, what expenses he 
 must incur, and what economies he can practise. 
 
 But further, the principle of limitation of dividend is 
 in itself faulty. So long as the charge is not too high, 
 the public have no interest in the reduction of dividend. 
 Their interest is in the reduction of price, which is a 
 totally difierent thing. If the consumer can get his 
 gas at 2s. instead of 4s. per 1000 cubic feet, he is not 
 the less benefited if the shareholder at the same time 
 gets 20 per cent, instead of 10 per cent. The fallacy 
 lies in supposing that wliat is taken from the share- 
 holder necessarily goes into the pocket of the consumer. 
 
 I 2 
 
IIG THE STATE IN ITS RELATION TO TIIADE cii. 
 
 It does no such thing ; it is probably wasted in stall' 
 and other easy extravagances, which the company have 
 no motive whatever for reducing. Indeed one of the 
 worst consequences of the system is, that it takes away 
 from the manufacturer (who it is to be remembered is a 
 monopoHst) his last and only inducement to improve- 
 ment and economy. It leads not only to extravagance 
 in current expenses, but to an extravagant waste of 
 capital. The shareholder having an easy and safe 10 
 per cent, on his original shares, is naturally anxious to 
 invest more money on so good a security, and is only 
 too glad if he can find an excuse for a further outlay. 
 Parliament, it is true, gives now only 7 per cent, on 
 fresh capital, and pretends to ascertain by investigation 
 before a select committee whether more capital is 
 wanted. This, again, is a question which neither a 
 committee nor a department of government can satis- 
 factorily determine. No one but the manufacturer 
 himself can say with any certainty how much capital he 
 needs ; and Parliament, pressed by the argument that, 
 if the company is not allowed to invest more capital 
 the town will not be lighted, cannot help giving to a 
 company the power of investing large sums which might 
 well be spared, and the interest of whicli becomes a 
 totally unnecessary charge on consumers of gas. 
 
 In fact, in this Pai'liamentary limitation of dividend 
 and capital we have gone on a perfectly wrong tack and 
 have involved ourselves in a maze of absurdities. 
 Coupled with the statutory price of gas, it really 
 operates as a guarantee to the companies of an easy 
 10 per cent, dividend. 
 
 But Pai'liament was not content wltli this encourage- 
 ment to extravagance. In its anxiety to regulate the 
 
X GAS-WORKS 117 
 
 internal financial concerns of the companies, which they 
 were perfectly able to manage for themselves, it required 
 them to offer all new capital to the existing shareholders 
 at par. As the capital with a safe 10 per cent, dividend 
 was worth twice its nominal amount, this was in effect 
 giving to the shareholders out of the pockets of the 
 consumers £200 for each £100 of new capital which 
 they provided, and of course operated as an inducement 
 to them to spend as much new capital as possible. It 
 is scarcely possible that State interference could have 
 been more mischievous. 
 
 These abuses have to some extent been modified, 
 if not put an end to, by recent legislation. As 
 regards profits, a sliding scale of price and dividend 
 has been adopted, under which, starting from a given 
 point of price and dividend, the gas companies are 
 enabled for every penny per thousand feet by which 
 they reduce the price of gas, to add a quarter per 
 cent, to their dividend, so as to divide any additional 
 profit they may make between the companies and their 
 consumers. This plan not only gives the consumer a 
 share in increased profits, but also gives the companies 
 a motive for economy. It has been adopted in London 
 and in many other towns. 
 
 As regards capital, gas companies coming to Parlia- 
 ment for power to raise money are required to put up 
 to auction all tlie fresh capital they require, so that any 
 premium upon the shares goes into the plant and 
 stock of the company, and not into the pockets of the 
 shareholders. 
 
 Both of these provisions seem to have worked well. 
 The sliding scale is adopted in fifty-two, the auction 
 clauses in 104, places. Both are adopted in London. 
 
118 THE STATE IN ITS RELATION TO TRADE ch. 
 
 As I have already stated, a still more complete 
 solution of the gas difficulty has been found in several 
 large towns, where the town councils have either made 
 or purchased the gas-works. In Manchester, where they 
 have for many years owned the gas-works, the result is, 
 that after supplying good gas at a cheap rate they have, 
 and have long had, a surplus of from £40,000 to £50,000 
 a 3^ear, with which they have effected all the recent 
 numerous and expensive improvements in the town, 
 besides paying a large part of the cost of their still 
 more expensive water-works. In the twenty years 
 ending with 1870 they had, after paying the cuiTent 
 expenses of gas manufacture and supply, made more 
 than a million of surplus profits. This mode of dealing 
 with the question has received countenance from recent 
 general legislation. By the Public Health Act urban 
 authorities are authorised to supply gas, though only in 
 places where there is no existing gas company. 
 
 10. Electric Lighting. — On this subject it is too early 
 yet to speak of results. But some important principles 
 have been established by the Act passed last session (45 
 & 46 Vict. ch. 56). It has been determined by that 
 Act that gas companies have no monopoly and no 
 priority in respect of light, but only in respect of gas ; 
 and it is evident that the competition to which they are 
 now exposed is already producing its effects in the im- 
 provement of gas. It has further been determined that 
 municipalities shall have the priority in providing 
 electricity if they choose to do it themselves ; that they 
 shall have a veto on the seven years' licences which the 
 Board of Trade are enabled, with their consent, to grant 
 to private companies, and that when tliey refuse their 
 assent, concessions to companies can only be made by 
 
X ELECTRIC LIGHTING 119 
 
 provisional order of the Board of Trade confirmed by 
 Parliament. A still moi'e important provision is one 
 (s. 27) which, following the precedent of the Tramways 
 Act, provides that after twenty-one years the local 
 authority of the district may purchase the undertaking 
 compulsorily on the terms of paying to the company the 
 then value of all land, buildings, and plant, belonging 
 to the company, at their then market value, having 
 regard to their condition and their suitability to 
 the purpose of the undertaking, but without any 
 addition for compulsory purchase, goodwill, or future 
 profits. 
 
 This is a case in which the enterprise is still of a 
 speculative and experimental character ; and therefore, if 
 the remarks made in an earlier part of this chapter are 
 sound, it is not one which it is desiral^le for municipal 
 governments to take into their own hands or to manipu- 
 late themselves. If they do so, they run the risk of 
 discrediting both the enterprise itself and the character 
 of local government. Whether they become in form 
 the undertakers, and then employ private companies to 
 undertake the speculation under their control, or allow 
 private companies to become the undertakers themselves, 
 it is pretty certain that the real pioneering must be 
 done by private capital, and that the governing bodies 
 of the towns will not become the manufacturers of 
 electricity till the process is better understood than it is 
 now. In making arrangements with the companies the 
 final interest of the public will in any case be protected 
 by the ultimate power to buy up the monopoly, and it is 
 to the interest of the public that the companies should 
 make a fair profit in the meantime. Indeed the exist- 
 ence of gas, and the competition with it, is of itself 
 
120 THE STATE IN ITS RELATION TO TRADE en. 
 
 sufficient to prevent for the present any excessive and 
 exorbitant price being demanded for electric lighting. 
 
 11. Wafer Supply. — In many respects this is like gas 
 supply. But water differs in being even more neces- 
 sary, in being more difficult to procure, and in requiring 
 greater outlay, with less profit, as the demand increases. 
 The supply also requires greater precautions to prevent 
 waste — precautions which it is difficult to intrust to a 
 private company. Under these circumstances, recently 
 established water companies, though not unprofitable, 
 have been less profitable than gas companies ; and their 
 differences with the consumer have related to deficiency 
 and impurity in the supply as much as to price. 
 Probably none of them, certainly none of the London 
 companies, pay 10 per cent, on recent investments. 
 
 Under these circumstances, the number of municipali- 
 ties which have supplied themselves with water is 
 greater than in the case of gas. The number of water 
 companies in the United Kingdom, exclusive of London, 
 as given in the published list some years since was 
 about 120, with a capital of between .£7,000,000, and 
 £8,000,000. In London there are eight companies with 
 a capital of more than £12,000,000. On the other 
 hand, there are many undertakings in the hands of 
 municipal authorities ; and these are to be found in 
 many of the largest towns, e.g., Liverpool, Manchester, 
 and Glasgow. 
 
 The regulations to which Parliament has subjected 
 water companies ^ are almost the same as in the case of 
 gas. 
 
 As regards limitation of profits, the conditions are 
 
 ' Water- works Clauses Act, 10 & 11 Vict. c. 17. 
 
X WATER SUPPLY— POST-OFFICE 121 
 
 precisely the same ; but their ultimate effect is not so 
 well seen, because the limit has seldom been reached. 
 
 It is needless to refer to the well-known case of the 
 London water companies and the attempt to purchase 
 them. It is a good illustration of the evil of an un- 
 limited concession of a monopoly of a necessary of life 
 to a private company, and of the difficulty of retracing 
 false steps. 
 
 In this case, still more than in that of gas, it is 
 important for the health of the people that the supply 
 should be in the hands of a body which can have no 
 motive for restricting it ; which does not seek profit 
 from it ; which can enforce rules for preventing waste, 
 and which can draw upon other funds, if the expense of 
 supply is large. 
 
 Parliament has consequently by the Public Health 
 Act, 1875, given to local authorities ample powers to sup- 
 ply water to the inhabitants of their district, not only 
 when there is no water company, but where the supply 
 by an existing company is improper or insufficient. 
 
 12. Post-Office and Telegraphs. — This, which is a most 
 striking instance of a trading government monopoly, is 
 so important that I have made it the subject of a 
 separate chapter.^ 
 
 Conclusions. — From the above notice of these several 
 undertakings, we may draw the following conclusions of 
 fact : — 
 
 (1.) That in an earlier state of society, the under- 
 takings of which we are speaking were generally 
 established and maintained by some public governing 
 body, whether of the country generally, of the districts 
 or interests concerned. 
 
 ^ See Chap. XI. 
 
122 THE STATE IN ITS RELATION TO TRADE ch. 
 
 (2.) That at a latex* period private capital and enter- 
 prise came to the assistance of Government, and did, and 
 still do, what Government never could or would have 
 done. 
 
 (3.) That at a later period still, the evils arising from 
 placing these undertakings, which must be to some ex- 
 tent monopolies, in the hands of private companies, has 
 been felt ; and that there is a tendency again to place 
 many of them in the hands of some public body — central 
 or local. 
 
 (4.) That whilst harbours, natural navigations, many 
 docks, roads, and bridges, a few gas-works, some water- 
 works, the post-office, and telegraphs, are now in the 
 hands of the State or of local governing bodies, many 
 docks, all railways, most tramways, and most gas and 
 water- works, are in the hands of private companies ; 
 and further, that the capital invested in these private 
 undertakings amounts probably to £1,000,000,000. 
 
 (5.) That there are many points in which the interests 
 of these companies are at variance with those of the 
 public ; and that the conditions which the state has 
 imposed on them for the purpose of preventing their 
 monopoly from being injurious to the public are still 
 tentative ; that these remedies have often proved in- 
 adequate, and sometimes mischievous ; and that whilst 
 it is right and necessary to impose some restrictions 
 on them, yet without great caution and wisdom such 
 restrictions are likely to be injurious to the public as 
 well as to the companies. 
 
 (6.) That the endeavour to get local authorities to 
 undertake these works themselves, and where conces- 
 sions are made to private companies to limit them in 
 point of time, as has been done in the case of tramways 
 
X CONCLUSIONS 123 
 
 and electric ligliting, though as 3'et experimental only, 
 is a liopeful experiment. 
 
 The above considerations are economical. There is 
 one other consideration of great importance, but of 
 importance in a political ratlier than in an economical 
 point of view, viz., the effect which would be produced 
 on the political morals of the country, of a town, or of a 
 district, if the patronage and other opportunities for 
 jobbing involved in the management of large public 
 works were placed in the hands of its governing body. 
 Some evils might thus arise. But most, if not all, of 
 the services in question will be rendered to the public, 
 and in public, and every defect in the service will be 
 promptly noticed and complained of. There is nothing 
 like plenty of work and full publicity for preventing 
 jobbery and keeping administration sound and pure. 
 On the other hand, also, there is a serious political evil 
 to be apprehended from the growing influence of the 
 great joint-stock company interest in Parliament and in 
 local governing boards. This evil is, if report speaks 
 truth, a very serious one in America. In this country 
 it is as yet not much felt, except in the combined resist- 
 ance which the companies make to any alteration of the 
 law which affects themselves. But the success and 
 ability with which they can do this is, considering the 
 ever- widening sphere of their operations, a great evil in 
 itself, and if they should ever turn their powerful 
 organisation to a political purpose, it would become a 
 national calamity. 
 
 Other Cases of Government Supply. — The above are 
 not the only cases in which the State, as represented 
 by local public bodies, has undertaken to supply com- 
 modities which are generally left to private enterprise. 
 
124 THE STATE IN ITS RELATION TO TRADE cii. x 
 
 By a variety of acts passed within the last thirty 
 years municipal authorities are enabled under vai-ious 
 conditions and restrictions to provide libraries and 
 museums, markets, slaughter-houses, baths and work- 
 houses, and even in some cases dwelling-houses for 
 artisans and labourers. It is therefore on the whole 
 clear that if it ever was a principle of English legisla- 
 tion that governing bodies are not to become makers 
 or sellers of commodities, that principle must now be 
 adopted with large reservations. Where profit can be 
 made sufficient to tempt private capital to embark in 
 the business, and where competition can be relied on to 
 prevent the evils of monopoly, it is as true as ever that 
 the public is best served by keeping the trade in private 
 hands ; but where these conditions are not to be found, 
 and where the matter is of such a kind that a public 
 governing body can properly manage it, experience 
 and analogy show that there is no a priori or absolute 
 objection to the state, whether in the form of the 
 central government or of a local authority, acting a,s 
 a trader itself. 
 
CHAPTER XI 
 
 POST-OFFICE 
 
 The Post-Office is the great instance of a trading 
 operation clone by the government for the pubHc, and 
 the success it has achieved is constantly appealed to by 
 those who advocate the assumption by government of 
 other trading operations. 
 
 History.^ — There appears to have been nothing in the 
 nature of a public post till the reign of Charles I. In 
 that reign posts from London to the north, the east, and 
 the west, were established vinder the charge of a Post- 
 master-General, and a monopoly of carrjdng letters was 
 claimed by the Crown. This claim was at first disputed, 
 but was afterwards confirmed by the House of Commons ; 
 and the enterprise of the Common Council of London, 
 who in 1649 set up a mail post in opposition to that of 
 the government, was promptly suppressed. At first the 
 Postmaster-General was allowed to make what profit he 
 could after paying the expenses, the charges for letters 
 being fixed ; afterwards the office was farmed, and it 
 was not till the end of the eighteenth century that the 
 practice of fai'ming came entirely to an end. In 1G83 
 
 ^ For a summary of the liistory of the Post-Office, see the first 
 report of the Postmaster-General presented to Pailianient in 1855. 
 
126 THE STATE IN ITS RELATION TO TRADE ch. 
 
 a penny post for London was established by one Robert 
 Murray, and assigned by him to one William Dockwra. 
 It met with some success, and was seized by the 
 government as an infringement of their monopoly. In 
 the hands of the government it became the well-known 
 twopenny post, which existed as a separate department 
 of the Post-Office until 1854. The net revenue arising 
 from the profits of the Post-Office, which in 168.3 had 
 been conferred on the Duke of York, was in 1 685 settled 
 on the King ; and was then estimated to amount to 
 £65,000 a year. In 1720 the cross posts of the country 
 were farmed to one Ralph Allen of Bath, the original of 
 Fielding's Squire Allworthy, who much improved them, 
 and made a large fortune by the undertaking. In 1784 
 a further improvement was effected by sending the 
 letters in well appointed mail coaches, instead of by the 
 miscellaneous and untrustworthy messengers to whom 
 they had been previously intrusted. This improvement 
 was due to the suggestion of Mr. Palmer, of Bath, and 
 to the sagacity of Mr. Pitt, who overruled the opposition 
 of the Post-Office. To Mr. Palmer was committed the 
 carrying out of his plan, which he did with great ability 
 and with much success, so far as concerned the public in- 
 terest. As regarded himself the success was not so great, 
 for he seems to have been deprived by the government 
 of a large part of the consideration which they had pro- 
 mised him. Various other improvements, including the 
 carriage of the mails l)y railway, were from time to time 
 made by the Post-Office authorities, and in 1840 the 
 greatest improvement of all, viz. the uniform " Penny 
 Postage," was adopted on the suggestion of Sir Rowland 
 Hill. The later histoi-y of the Post-Office is one of con- 
 stant improvement, extension, and assumption of new 
 
XI HISTORY OF THE POST-OFFICE 127 
 
 functions. The railway, the steamship, and the tele- 
 graph have come in aid of its operations, and it has not 
 been slow to avail itself of these powerful auxiliaries. 
 Its ubiquitous machinery has lent itself easily to simple 
 money dealings, and it has thus been able to supplement 
 the banks of the wealthy by acting as banker for the 
 pool-. The following is a brief outline of its present 
 functions. 
 
 Cai-riage of Letters. — The details of this service will 
 be found in the Postal Guide and in the reports of 
 the Postmaster-General. Here it will be sufficient 
 to refer to the reduction of charge ; the extension of 
 Post-Offices ; the increase in collections and deliveries ; 
 the establishment of pillar posts ; the establishment of 
 letter-boxes in the postal vans on railways ; the assimi- 
 lation of postage and receipt stamps ; the registration 
 of letters ; the institution of and improvements in post- 
 cards ; the newspaper and book-post ; and the interna- 
 tional postal union, which extends many of these bene- 
 fits to communication with the rest of the world ; as 
 illustration of the continued activity of the department. 
 
 As an indication of the growth of this part of the 
 business, it may be mentioned that in 1839, before the 
 establishment of the penny post, the number of letters 
 sent per head of the population was 3 ; in 1840, just 
 after its introduction, 7; in 1872 it had become 28; 
 and in 1882 it was 35.^ The actual number of letters 
 sent was, in 1850, 347,069,071, or 13 per head of 
 population; in 1860, 560,002,000, or 19 per head; 
 in 1870, 847,000,000, or 27 per head; in 1880, 
 1,176,423,600, or 34 per head; besides which in 
 1880 there were 122,884,000 postcards. 
 
 1 See 28tli Report of Postmaster-General (c, 332-t, p. 1). 
 
128 THE STATE IN ITS RELATION TO TRADE ru. 
 
 The following figures from the postal statistics of 
 foreign countries show that the people of England avail 
 themselves of the public post more than twice as much 
 as do the people of the most forward of foreign 
 countries : — 
 
 Letters sent. 
 
 United Kingdom 1,176,423,600 
 
 France 
 Germany 
 Holland 
 United States 
 
 524,380,300 
 
 731,755,000 
 
 54,732,000 
 
 878,468,700 
 
 Number per liead 
 of population. 
 
 34 
 14 
 16 
 13 
 17 
 
 Parcels Post. — This is a great development of the carry- 
 ing functions of the Post-Office, and is important, not 
 only on account of the immediate facilities Avhich it will 
 afford the public, but because it brings the postal system 
 into much closer communication and harmony with the 
 railway system of the country. The details of the plan 
 are not yet in a sufficiently forward state to be made 
 public, but it is obvious that they must render necessary 
 a very large development both of carriage for the Post- 
 Office by railway, and also of the subsidiary means of 
 collection and distribution which the Post-Office now 
 employs. The nearest railway station must become far 
 more than ever the postal centre of the district, and the 
 collection and delivery of 71b. parcels will overtask the 
 powers of walking postmen. 
 
 The sanction of Parliament was given to this new 
 development by the Act 45 and 46 Vict. ch. 74, and the 
 
XI PARCELS POST 129 
 
 chief features of the scheme whicli it sanctions are as 
 follows : — 
 
 The rates of postage and weights of parcels are 
 to be 
 
 For an Inland Parcel of a weight 
 
 Not exceeding lib. 
 
 Exceeding lib. and not exceeding 31bs. 
 Exceeding 31bs. and not exceeding 51bs. 
 Exceeding 51bs. and not exceeding 71bs. 
 
 Rate of postage. 
 
 •M. 
 GfZ. 
 %d. 
 Is. 
 
 Power is reserved to make from time to time any 
 alteration in these rates which the interest of the public 
 may require. 
 
 The Post-Office is to collect the parcels and to deliver 
 them at the railway-station, and has power to send an 
 officer in charge of them. The railway companies are 
 to receive the parcels and to carry them by any train 
 by which parcels are conveyed, and to provide means 
 for sorting them in the train. The Postmaster-General 
 is to hand over to the railway companies ^^ths of his 
 gross receipts from parcels, and this is to be paid to 
 the Railway Clearing House and distributed by them 
 amongst the railway companies in proportion to the 
 receipts of the companies for parcel traffic. Provision 
 is made for revision of the terms fixed by the act, and 
 for referring disputes to arbitration. 
 
 Not only is no monopoly confen-ed on the Post-Office ; 
 but the rights of the companies to carry parcels on 
 their own account is expressl}'^ reserved. The first 
 
 K 
 
130 THE STATE IN ITS RELATION TO TRADE ch. 
 
 effect of tho proposed arrangement has consequently 
 been that some of the railway companies have them- 
 selves reduced their own charges for carrying parcels. 
 
 As soon as the Inland Parcels Post is established, 
 it will be worked in connection with the International 
 Parcels Post which is now in operation. This will 
 enable parcels to be posted from any part of the 
 United Kingdom to every other country in Europe 
 except Russia, and to Egypt and Asiatic Turkey. 
 
 Telegraphs.—These were first established by private 
 companies, and the government bought them np in 
 1870. The capital of the debt incurred for this purpose 
 amounts to £10,880,571, and the interest upon it to 
 £326,417. 
 
 There can be no doubt that the price thus paid 
 was a heavy one. There have also been heavy charges 
 for improvements and extensions of the service, ^ but 
 the telegrams sent have increased from 9,850,177, or 
 •3 per head of the population in 1870, to 31,345,861, 
 or -9 per head in 1881 ; and the income, £1,630,000, is 
 now equal to the expenditure, £1,366,000, with the 
 addition of the interest on the debt incurred for 
 purchase. The number of private messages is about 
 three for each four persons in the United Kingdom, and 
 the proportion of telegrams to letters is as 1 to 44. 
 In France the proportion of telegrams to letters is as 
 1 to 29 ; in Belgium 1 to 24 ; in Holland 1 to 22 ; and 
 in Switzerland 1 to 23. But the proportion of tele- 
 grams to population is greater in England than in any 
 of these countries except Switzerland. 
 
 ^ See 28th Report of tlie I'ostmaster-General, and Pailiament- 
 aiy Papers 47 aiul 04 of 18SJ. 
 
XI TELEPHONES— POST-OFFICE SAVINGS BANKS 131 
 
 Telephones.^ — It has been decided upon appeal to the 
 courts of hiw, tliat the Post-OtHce has llie legal 
 monopoly of this comparatively new means of com- 
 munication, as well as of the Telegraphs. The Post- 
 master-General, however, has not thought it right to 
 avail himself of this monopoly, either in order to 
 exclude private enterprise, or to confer a monopoly 
 on any one private agency. He has established, or is 
 prepared to establish, telephonic communication by the 
 Post-Office where it is found expedient to do so, 
 whether there are already private agencies at work or 
 not, and he has granted licenses, or is prepared to grant 
 licenses, to private agencies, under conditions which 
 may be regarded as giving adequate protection to the 
 public and the department, without regard to the 
 question whether telephonic communication is already 
 established or not. In effect it would seem, from the 
 action thus taken by the Postmaster-General, that there 
 is to be no monopoly, at any rate until competition has 
 been tried and it has been ascertained by experience 
 what is the best mode of doing the business. 
 
 Post-Office Savings Banks} — The Post-Office, having 
 at every Post-Office throughout the country a local 
 agency through which money can be received and 
 paid, has undertaken the duty of banker for the 
 poor. This part of its business commenced in 18G1, 
 and it has since rapidly increased. The number of 
 accounts open was in 1865, 611,384, and the aggregate 
 amount of capital £6,526,400; in 1870 the number 
 of accounts was 1,183,153, and the capital £15,099,104; 
 in 1875 the number of accounts was 1,777,103, and 
 
 ^ See 2Slh Report of Postniaster-lJeneral. 
 
 K 2 
 
132 THE .STATE IN ITS RELATION TO TRADE ch. 
 
 the capital £25,187,345 ; and in 1881 the number of 
 accounts was 2,607,612, and the capital £36,194,495. 
 The Post-Office also invests for depositors in Govern- 
 ment Stock, and the aggregate amount which had been 
 so invested was, in 1881, £875,086. 
 
 The operation of the Savings Banks has been facili- 
 tated since 1880 by the penny stamp savings scheme, 
 enabling persons to invest in the Bank by placing 
 twelve penny stamps on a given form and handing it 
 in to any Post-Office as a deposit for a shilling. An 
 average of about £250 a day has been received by this 
 means, and the eflfect is seen in the reduction of the 
 average amount of deposit from £2 14s. 5d. in 1880 
 to £2 in 1881, whilst the aggregate amount received 
 has increased by more than a million. 
 
 Money Orders and Postal Orders. — The Post-Office 
 also acts as a remitter of small sums of money. 
 Money Orders are directions given by a postmaster at 
 one place to a postmaster at another place to pay an}^ 
 sum of money not exceeding £10 to a particular person. 
 Postal Orders are general orders for the payment to 
 any person to be named in the order of certain given 
 sums ranging from 1/- to 20/-, and they can be cashed 
 at any Post-Office. Money Orders have been in force 
 since 1850 ; Postal Orders only since 1880. The Money 
 Order system has been extended to the colonies and to 
 most foreign countries. The Inland Money Orders 
 were, in 1881, 14,880,821 in number, and £23,848,936 
 in amount, showing a decrease of upwai-ds of a million 
 and a half in number and nearly a million in amount 
 as compared with 1880. But on tlie other hand 
 the Postal Orders were 4,462,920 in number, and 
 £2,006,917 in amount; thus showing that they have 
 
XI INSURANCE AND ANNUITIES 133 
 
 to a considerable extent taken the place of Money 
 Orders. 1 
 
 Insurance and Annuities. — The Post-Office also offers 
 facilities for insuring lives to a small amount, either 
 by the payment of a lump sum or of an annual 
 premium ; and for the purchase of immediate or of 
 deferred life annuities. But this part of the business 
 has not hitherto proved a success. An endeavour is 
 being now made to extend it by connecting it with 
 the Savings Bank. 
 
 Revenue and Expendihire. — The gross revenue of the 
 Post Office in 1881 was £9,028,374, and the expendi- 
 ture .£5,927,899, showing a surplus of income of 
 £3,100,475, from which, howevei', has to be deducted 
 £326,417 as interest on the debt incurred for the 
 purchase of telegraphs. 
 
 One interesting feature connected with the Post- 
 Office is the successful employment of women in the 
 office work. They now amount to 2,299, and the Post- 
 master-General states that their employment has been 
 attended with so much advantage to the department 
 that he proposes to add to the number. 
 
 General Observations. — There can be no doubt that 
 the Post-Office is a striking instance of the way in which 
 a service which is essentially a trading service can be 
 performed by a department of the state. The Postmaster- 
 General is a carrier, a transmitter of messages, a banker, 
 and an investment broker. These functions his office 
 discharges with more than average success, and with 
 zealous attention to the growing wants of the nation. 
 
 But as this instance is often urged as one which 
 justifies far more extended operations on the part of 
 1 See 28th Report of Postmaster-General, 
 
134 THE STATE IN ITS RELATION TO TRADE ch. 
 
 the state, such as the purchase and working of railways, 
 it may be wortli while to point out two or three special 
 conditions and limitations which make the Post-Office 
 service peculiar. 
 
 In the first place, the Post-Office has filled vacant 
 gaps in business which private traders have not been 
 willing or able to occupy. The carriage of letters was 
 imperfectly performed, or not at all, when the Post- 
 Office took it up ; and when it had been taken up by 
 them, the first great improvements originated with persons 
 outside of the office. The investment and remittance of 
 very small sums of money was a business which private 
 bankers did not find it worth while to undertake. The 
 ubiquitous organisation of the Post-Office has rendered 
 these operations possible and even profitable in its 
 hands, while it was impossible or unprofitable when 
 attempted partially or on a smaller scale. 
 
 In the second place, the Post-Office have not under- 
 taken a business which requires either manufacture, 
 or invention and speculation. It has made use of 
 existing and well-known agencies, where the only 
 difficulty was one of organisation ; where there were no 
 great experiments to be made ; where there was no risk 
 of great losses ; and no hope of extraordinary gains. It 
 is a merit of the undertaking, regarded as an official 
 institution, that there is very little of that speculative 
 element in it which is the life-blood of commercial 
 activity. In the one case under the Post- Office where 
 the undertaking is as yet experimental and speculative, 
 viz. that of telephones, the Postmaster-General has 
 come to the conclusion that it is not wise to oxclud(> 
 private enterprise. 
 
 Finally, the service, excellent as it is, has not avoided 
 
XI GENERAL OBSERVATIONS 135 
 
 one peril, which makes cautious statesmen unwilling to 
 extend their industrial functions, viz. the difficulty of 
 dealing with a large class of servants. No one who 
 has watched the pressure which the services can bring 
 to bear on government through the medium of members 
 of Parliament, will undervalue this danger. 
 
CHAPTER XII 
 
 RAILWAYS 
 
 I 
 
 This subject alone, if fully treated, would fill my 
 whole space, and all I can do is to glance at a few 
 salient points. 
 
 Growth of Bailicays. — The development of railway 
 communication in Great Britain has been such as no 
 government management, however good, could possibly 
 have produced. The number of lines, the number and 
 speed of trains, and the general comfort and convenience 
 of our railway system, are greater than can be found 
 in any other country. The number of miles of railway 
 open was 10,433 in 1860, and 18,175 in 1881. The 
 tonnage of goods carried was 90,000,000 in 1860 and 
 nearly 250,000,000 in 1881. The number of passen- 
 gers carried, exclusive of season ticket holders, was 
 163,000,000 in 1860, and 626,030,000 in 1881. What 
 is still more important as evidence of the service 
 which the railways are rendering to the mass of the 
 people, is that third-class passengers have increased 
 from about 94,000,000 in 1860 to 523,000,000 in 1881. 
 The capital, which was about £350,000,000 in 1860, 
 was £745,500,000 in 1881, and the dividends had 
 slightly increased. The danger rate, as shown by 
 
CH. XII LEGISLATION 137 
 
 the proportion of casualties to the amount of travelHng, 
 has sensibly diminished. What is still more important 
 is, that the whole of this has been done by private 
 capital and enterprise, unaided by government direction 
 or by any grant of public money. The only thing which 
 the legislature has given to the companies is the power 
 to take land, and for this they have had to pay, 
 directly or indirectly, an enormous price. On the other 
 hand, they still remain subject to a passenger duty from 
 which all other forms of locomotive enterprise are now 
 free. 
 
 Legislation. — There has been constant legislation on 
 the subject of railway traffic. Eight committees and 
 commissioners have made long and elaborate reports, and 
 there have been about forty general acts, besides the 
 special acts of the different companies. The legislature 
 has provided an elaborate code of laws for the protection 
 of landowners, of road trustees, and of gas and water 
 companies ; and there are many enactments having the 
 safety of passengers for their object, to which further 
 reference will be made below. There have also been 
 provisions of the most elaborate kind fixing the capital 
 of the railway companies, their borrowing powers, and 
 the financial arrangements of the shareholders inter se — 
 matters which really concern themselves, and not the 
 public. These matters, according to the principles of 
 recent legislation concerning other joint-stock companies, 
 are left to the partners themselves, and to the operation 
 of the ordinary law of debtor and creditor, from which 
 railway companies have been excluded. 
 
 As regards the commercial business of the railways, and 
 the protection of the public from monopoly, the principal 
 provisions are as follows : — 
 
138 THE STATE IN ITS RELATION TO TRADE en. 
 
 Limitation of Bates and Fares. — The charges on all 
 railways are limited by their special acts. This limitation 
 is in most cases inoperative, since the maximum rates 
 fixed by the acts are in general considerably higher 
 than the rates which the company find it their interest 
 to charge. Indeed, it is obvious that, without power to 
 revise the tolls periodically according to the altered 
 circumstances of a railway, any attempt to fix them 
 once for all by anticipation must be nugatory. As 
 population, capital, trade, and manufacture increase, 
 traffic increases also, and a charge which would have 
 been moderate if levied on the small traffic which 
 existed when the railway was made becomes exorbitant 
 when multiplied by the increase of traffic. The interest 
 of the companies in developing traffic, although it may 
 under certain circumstances be an insufficient safeguard, 
 is yet a better safeguard than any standard of tolls and 
 charges fixed at the time when the company commences 
 operations. Still, the parliamentary limit, which can 
 always be revised when a company seeks fresh powers 
 from Parliament, is an important security against 
 possible extortion. 
 
 Limitation of Profits. — In some of the earlier private 
 bills, Parliament adopted its favourite notion of limiting 
 the profits of the company to a 10 per cent, dividend. 
 And in 1844 an act^ was passed enabling the Treasurj'^, 
 in the case of any railway constructed after the 1st of 
 January 1845, upon the expiration of twenty-one years 
 from the passing of its private act, and in the event of 
 its profits for three years exceeding 10 per cent., to re- 
 vise the tolls. The Treasury were in like manner, after 
 twenty-one years, enabled to purchase the railway. But 
 • 7 & 8 Vict. ch. 85. 
 
xir CHEAP TRAINS 139 
 
 tlio power of revision of tolls was to bo accompanied by 
 a guarantee from the state of a constant 10 per cent, 
 dividend ; and the purchase was only to be effected at 
 the rate of twenty-five years' purchase of the actual 
 annual profits, or, if they should be less than 10 per 
 cent,, at an additional price to be fixed by arbitration ; 
 and neither revision nor purchase were to be effected 
 without a special Act of Parliament. 
 
 How ineffectual any such limitation of profits would 
 be, if exercised, we shall see in the case of gas com- 
 panies. In the case of railway companies, a 10 per cent, 
 dividend is seldom, if ever, made. 
 
 Government Purchase. — As regards the power of pur- 
 chase, the conditions attached to it, viz. that the power 
 should only apply to companies entirely made after 1844, 
 that the price should be determined as above mentioned, 
 and that the purchase should only be effected by a special 
 Act of Parliament, reduce the power to little more than 
 an unnecessary notice to the companies that the govern- 
 ment might at some future time bring before Parliament 
 a scheme for the purchase of railways. Nay, the com- 
 panies actually procured in one of the recitals of the 
 act in question a recognition of the very questionable 
 principle that it was not the meaning of Parliament 
 that companies should be exposed to competition with 
 railways owned or conducted by government. 
 
 Cheajy Trains. — Provisions were also made by Parlia- 
 ment ' requiring companies to carry poor persons at 
 what were then considered cheap rates, giving to the com- 
 panies in return exemption in respect of these trains 
 from passenger duty. Here, again, the impossibility of 
 determining charges beforehand is well illustrated. It 
 1 1 & 2 Vict. ch. 98 ; 7 & 8 Vict. ch. 85. 
 
140 THE STATE IN ITS RELATION TO TRADE cir. 
 
 has become the most profitable part of the l)iisiiiess 
 of many companies to carry third-class passengers afe 
 less than the parliamentary cheap fares ; and the only 
 result of the enactment is an exemption from general 
 taxation, a constant dispute between the companies 
 and the Chancellor of the Exchequer, and an induce- 
 ment to the companies to disarrange their natural 
 and beneficial traflic in order to get the benefit of the 
 exemption. 
 
 Carriage of Mails. — It was not thought expedient ^ 
 in making the concessions to the companies, to require 
 from them in return any service in carrying the mails. 
 The Post-Office can require them to carry mails and mail- 
 guards, but for all such service it has to pay just as any 
 private person would do. In the present state of things, 
 in rural districts, where the station has superseded the 
 old village and is the centre of communication for the 
 country side, it is often desirable that the post-office as 
 well as the telegraph should be there concentrated, and 
 it seems desirable that the guards of all or any trains 
 should take charge of and deliver letter-bags, as they 
 do small parcels. However this may be, it is one of the 
 merits of the new parcel-post that it will bring the 
 railways and the post-office into closer connection. 
 
 Forivarding Traffic. — As regards intercommunication 
 between di£Ferent railways and joint arrangements for 
 continuous traffic, the legislature in 1854 ^ did provide 
 that the companies should afford reasonable facilities 
 for forwarding each other's traffic, but it rendered the 
 enactment nugatory by placing the power of enforcing 
 it in the hands of an ordinary court of justice. 
 
 M & 2 Vict. c. 98 ; 7 & 8 Vict. c. 85. 
 - 17 & 18 Vict. c. 31. 
 
\'ii JOINT COMMITTEE OF 1872 141 
 
 Joint Committee of 1872. — The subsequent history and 
 results of lej^islation concerning railway companies, con- 
 sidered in their commercial aspect, are fully given in the 
 Report of the Joint Committee of the Lords and Com- 
 mons on Railway Amalgamation in 1872.^ Their conclu- 
 sions are, in general terms, that the efforts of Parliament 
 to prevent amalgamation and secure competition had 
 failed ; that there is real and effective competition, 
 especially in the carriage of heavy goods, through the 
 medium of sea traffic ; that competition by canal cannot 
 be relied on ; that there is real competition between rail- 
 ways themselves in the matter of facilities, but little in 
 the matter of charges ; that where competition does not 
 regulate charges the self-interest of the companies leads 
 them to develop new and promising traffic, and to 
 promote competition between distant seats of trade or 
 manufacture by neutralising distances ; and that although 
 in so doing they may be exposed to the charge of making 
 some parts of their system pay for others, their action is 
 probably advantageous to the public as well as them- 
 selves ; that self-interest does not always lead them to 
 make the lowest profitable charges, or to maintain water 
 communications which are in their control, or to forward 
 traffic by the shortest and best route, or to make or pro- 
 mote new lines ; and the general recommendations of 
 the Committee are as follows : — 
 
 " 1. Effectual competition by sea exists, and ought 
 to be guarded by preventing railway companies from 
 obtaining control over public harbours. 
 
 " 2. Competition by river and canal exists to a 
 partial and limited extent only, and many important 
 links of canal navigation are in the hands of railway 
 
 ' Rl. Pail. Paper 364, 1872. 
 
142 THE STATE IN ITS RELATION TO TRADE en. 
 
 companies whose interest it often is to depreciate 
 tliem. It is important that an effort sliould be made 
 to maintain the competition which now exists, and it 
 is still more important, whether competition is main- 
 tained or not, that the capacities of inland navigation 
 sliould be fully vitilised and developed. 
 
 " 3. Equal mileage rates are inexpedient. 
 
 " 4. It is impracticable to establish any standard for 
 the revision of rates and fai'es founded on cost and 
 profit. 
 
 "5. Thei'e would be much difficulty, and little, if any, 
 gain to the public in determining a maximum scale of 
 ' terminal charges.' 
 
 " 6. Immediate reduction of rates and fares, even 
 when practicable, cannot be looked upon -as permanently 
 effectual. 
 
 " 7. Periodical revision of rates and fares is imprac- 
 ticable without some standard of revision. 
 
 " 8. Revision of rates and fares founded on a 
 limitation of dividend to a fixed amount is undesirable 
 in the interest of the public. 
 
 " 9. Revision of rates and fares founded on a division 
 of profit above a certain amount between the com- 
 panies and the public in this country is attended with 
 great, if not insuperable, difficulties. 
 
 "10. A new and uniform classification of I'ates is 
 desirable and practicable, and there should be power 
 to alter the classification from time to time with consent 
 of the commissioners mentioned below. 
 
 "11. The companies ought to be compelled by exhi- 
 bition of their books at every station to inform the 
 public what rates they charge for goods to all stations 
 to which they book, distinguishing between mileage 
 and ' terminals,' and giving all special rates and con- 
 tracts. If complaint is made that this condition is not 
 properly complied with, the commissioners mentioned 
 below should have power to enforce it. 
 
 "12. If a primd facie case is made raising a sus- 
 picion that any company is charging unequally or 
 
XII JOINT COMMITTEE OF 1S72 143 
 
 unfairly, contrary to the principles of the Railway and 
 Canal Traffic Act, the coinniissioners should have power 
 to call upon the company to state their reasons for such 
 charges. 
 
 "13. There is serious difficulty in any general 
 legislation on the subject of workmen's trains, but 
 where they are proved to be needed, the obligation to 
 run them may properly be imposed as a condition of 
 amalgamation. 
 
 " 14. Whilst on the one hand there may be amalgam- 
 ations so large as to be objectionable, and whilst on 
 the other there are cases in which amalgamation is 
 obviously desirable, it is impossible to rearrange the 
 railway map, or to determine by any general scheme 
 what amalgamations shall be allowed, and what shall 
 not. 
 
 " 15. In the event of branch railways being wanted 
 and being refused by the existing companies, power 
 should ])e given to local authorities to make them, or to 
 guarantee the existing companies a moderate retui'n 
 on the necessary capital ; and on such guarantee being 
 given, the companies should be bound to make and 
 work the line. If differences should arise between the 
 local authorities and the companies, they should be 
 settled by the said commissioners. 
 
 " 16. The Railway and Canal Traffic Act ought to be 
 explained by enabling every railway company to make 
 through rates and fares from or to any station on its 
 own line, to or from any station on any other line, the 
 rates to be divided as a general rule according to 
 mileage after allowing for terminals ; but with a 
 provision that if any objection be made to the pro- 
 posed rate or division as unfair, and no agreement can 
 be come to, the commissioners mentioned below shall, 
 upon the application of any of the companies interested, 
 decide the matters in dispute. 
 
 "17. Running powers may usefully be given in cer- 
 tain cases, and the propriety of giving them should be 
 carefully considered by the joint committee hereafter 
 
144 THE STATE IN ITS RELATION TO TRADE oh. 
 
 mentioned. But it is not practicable or desirable to 
 give to railway companies generally running powers 
 over the lines of other companies, or to treat these 
 powers as conditions to be imposed by general legisla- 
 tion. Differences as to running powers when given 
 should be settled by the said commissioners. 
 
 " 18. The administration of the Railway and Canal 
 Traffic Act ought to be assigned to a special tribunal, 
 possessing knowledge of railway management. Such 
 a tribunal will be found in the railway commission 
 
 mentioned below. 
 
 ****** 
 
 "21. To perform the various duties referred to in this 
 report, a special body should be constituted, entitled 
 the Railway and Canal Commission, which should 
 consist of not less than three members. They should 
 be persons of high standing, of whom one should 
 be an eminent lawyer, and one should be thoroughly 
 acquainted with the details and practice of railway 
 management." 
 
 These recommendations were acted on by the passing 
 of the Regulation of Railways Acts 1873, (3G & 37 Vic. 
 c. 48) and the appointment of commissioners under it 
 with the powers recommended by the joint committee. 
 The number of cases under it has not been large, and 
 its decisions have often been defeated by appeal to the 
 law courts in the form of a writ of prohibition. But 
 there can be no doubt that the tendency of public opinion 
 is in favour of strengthening the hands of the commission 
 and the report of the recent Committee of the House of 
 Commons in 1881 and 1882 makes explicit suggestions 
 for that purpose. Upon other points the opinion of 
 that committee was much divided, and it would be 
 premature to attempt to say what the result is likely 
 to be. One question wliich occupies a large part of 
 
XII COMPETITION 145 
 
 the discussions before the committee concerns the in- 
 equality of rates. When this inequality arises from 
 caprice, or negligence, or partiality, it is clear that 
 there ought to be a summary and stringent remedy. 
 But when it arises from a desire on the part of the 
 companies to meet competition, or to develop a grow- 
 ing traffic which would not otherwise exist, where, in 
 short, it is due to the ordinary trading motives, it 
 would be contrary to authority, to analogy, and to 
 the best interests of the public, to put an end to it. 
 To say to the conqmnies that they shall not reduce 
 their rates in favour of one customer unless they reduce 
 them in favour of all, is to put an end to that competi- 
 tion and that desire of pr-ofit which is a far more 
 effectual security for moderate rates than any legislative 
 restriction of charges can possibly be. 
 
 Comj'ietition. — It is probable that the competition 
 which really exists, especially for goods traffic, has 
 been somewhat underrated. Living in an island, as 
 we do, with seaports on every coast, there exists a 
 virtual competition not only between the places which 
 are themselves upon the sea, but also between all places 
 which are accessible from the sea by different lines of 
 rail. There is an intense competition for traffic to 
 the midland counties between London, Liverpool, 
 Hull, and other seaports, and the several railways 
 which lead from them. There is a further form of 
 competition, in the possibility of new lines ; and such 
 cases as the Hull and Barnsley Railway, recently 
 authorised by Parliament, show that this form of compe- 
 tition has not entirely lost its power. These different 
 forms of competition have been treated in a recent 
 official report on the French railway system prepared 
 
140 THE STATE IN ITS RELATION TO TRADE ch. xii 
 
 by M. Waddington, as reasons why French railway 
 companies, which are not exposed to competition, give 
 the pubHc fewer advantages than Enghsh railways, and 
 require a different treatment. It is to be hoped that 
 we shall not sacrifice this advantage to any dreams of 
 equalization of railway rates, dreams which when in- 
 vestigated are generally found to originate in the very 
 natural and common but not the less mischievous desire 
 for protection from trade competition. 
 
CHAPTER XIII 
 
 MERCHAXT SHIPPIXG 
 
 Merchant shipping has ah'eady been mentioned as 
 one of the greatest of our trading interests. Its enor- 
 mous magnitude, its special importance to the nation, 
 and the peculiarity of its character and circumstances, 
 justify a separate chapter, for the purpose of showing 
 how constant, how intimate, and how peculiar are the 
 relations of the State to a merchant ship from the day 
 when she becomes a ship to the day when she is bi-oken 
 up or abandoned. Under these relations are comprised, 
 as stated above, not only the direct action of the execu- 
 tive, but the special laws and customs which govern 
 this form of mercantile property. 
 
 Measurement and Registry. — When a ship is first built 
 she is measured by a Government officer for her official 
 tonnage. This measurement answers various purposes. 
 It is the standard by which the ship is taxed for light, 
 harboui', and dock dues. It denotes the size of the hull 
 and its capacity for carrying cargo. Taken in connec- 
 tion with other particulars, it determines the identity of 
 the ship. The present mode of measurement, which 
 was due chiefly to the late Mr. Moorsom, and which is 
 embodied in the Merchant Shipping Act of 1854, is 
 
 L 2 • 
 
148 THE STATE IN ITS RELATION TO TRADE ch. 
 
 founded on the principle of ascertaining the exact 
 cubical capacity of the ship, and giving the results in 
 tons, each of which contains 100 cubic feet. 
 
 It has given general satisfaction, and has been adopted 
 by all foreign nations. But certain anomalies, arising 
 out of questionable exemptions, originally introduced to 
 meet the claims of particular interests, as well as out 
 of new methods of construction, have arisen in the 
 English law ; and with the view of removing these 
 anomalies a Royal Commission was recently appointed. 
 The majority of this commission recorded their strong 
 approval of the principle of the existing law, and made 
 certain recommendations, which, if adopted, would lia\e 
 the effect of removing the existing anomalies, and of 
 bringing English law into harmony with that of other 
 nations. A small minority recommended the abandon- 
 ment of the present principle of ascertaining the cubical 
 contents of the hull, and the substitution of a principle 
 long since discarded, viz., that of displacement. Any 
 such change is really out of the question, both because it 
 is not an improvement in itself on the present method, 
 and because it is contrary to the practice of the world. 
 But the action of the minority of the committee has 
 had the effect of making the removal of defects in the 
 existing law more difficult than it would otherwise be. 
 
 When the ship is measured, her name is entered in an 
 official register book, kept at each port by the officers of 
 customs, with a full description, and the name of the 
 owner. An official copy of the entry on parchment, 
 called the Certificate of Registry, is given to the owner 
 of the ship, and always afterwards goes with her till 
 she is broken up, or otherwise ceases to be a British ship. 
 It is this document which identifies her and gi^■es her the 
 
XIII MEASUREMENT AND REGISTRY 149 
 
 right to carry the Britisli Hag. The name which is in- 
 scrihed on it cannot be altered without otiicial sanction. 
 For the purpose of further identifying her and prevent- 
 ing the confusion which would arise from a number of 
 ships with the same name, an official number is given 
 her, which is entered in the register book and certificate 
 of registry, and is also permanently marked on the ship 
 herself. Her name, port of registry, and draft of water, 
 are also marked under official inspection on the outside 
 of the ship. 
 
 The register of the ship kept in the book at the 
 Custom House constitutes the title to the ship. The 
 name and address of each owner, with the number of 
 shares belonging to him, is entered upon it, and any 
 transfer or mortgage of the ship or shares is entered in 
 the same book, whenever and wherever it occurs. No 
 notice is taken of any trusts, and any innocent pur- 
 chaser who takes a conveyance from the persons whose 
 names are on the register has an absolute and in- 
 defeasible title. A copy of every entry made on the 
 register at any port is sent every day to the Registrar- 
 General of shipping in London, who is an officer of the 
 Board of Trade ; and there is thus in his books a 
 complete and trustworthy record of the actual title of 
 every British ship, and this record can be consulted on 
 the payment of a trifling fee. In this way the State 
 provides for the owners of merchant ships a complete 
 system of title and conveyance, so that the transfer of 
 a vessel worth £100,000 may be completed for a 
 shilling. 
 
 The title of any British ship may be transferred from 
 any port in the British Empire to any other, by a 
 simple letter between the registrars at the two ports. 
 
150 THE STATE IN ITS RELATION TO TRADE ch. 
 
 which is sent on application by the registered owner ; 
 and if an owner wishes to deal with his ship at a 
 distance from her port of registry, he can get from the 
 registrar an ambulatory form of registry which enables 
 him to make a complete title to a distant purchaser. 
 
 When the ship is broken up, lost, or sold to a 
 foreigner, a report has to be made to the registrar ; the 
 certificate of registry is given up to him, and the register 
 is closed. 
 
 Officers and Creto. — The officers of a merchant ship 
 are required to pass examination in technical pro- 
 ficiency, and to produce evidence of character ; they 
 then receive certificates enabling them to act as masters, 
 mates, and engineers. 
 
 The crews of ships which are employed on voyages 
 beyond the river Elbe and Bluest, are engaged in a 
 public oflice before a public ofiicer, and the terms of 
 the engagement are read out and explained to the 
 seamen. Elaborate provisions are made by the merchant 
 Shipping Acts for preventing desertion and maintaining 
 discipline ; but in these, considerable alterations have 
 recently been made. Desertion, and refusal to join 
 after engagement, were formerly treated as criminal 
 offences, and are still so treated by the laws of most 
 nations. But, following the principles which have been 
 adopted in the law governing other contracts of employ- 
 ment. Parliament has recently repealed the enactments 
 which gave these criminal remedies ; and refusal to 
 perform a contract to serve at sea is now treated like 
 other refusals to serve, as a breach of civil contract. 
 The penalties for breaches of discipline by a seaman 
 when he has joined his ship are retained intact. It 
 cannot be denied that this change in a long-established 
 
xiii OFFICERS AND CREW 151 
 
 practice has been productive of some temporary incon- 
 venience, and that desertions have increased within the 
 last two years. But it is to be hoped and expected 
 that this inconvenience will be but temporary ; that the 
 ultimate effect of the change will be to produce a better 
 and more wholesome relation between owners and their 
 crews ; that the vicious practice of giving unnecessary 
 advances of wages may come to an end ; and that in 
 lieu of this practice, with its demoralising temptations, 
 and the arbitrary powers of imprisonment, on which 
 shipowners have hitherto been led to rely for the 
 manning of their ships, there may be substituted those 
 inducements to voluntary service which are found 
 effectual in other branches of employment. 
 
 When the ship has gone to sea the law still follows 
 the crew ; certain rights and duties are prescribed ; 
 provision is made for enforcing them by means of the 
 consular staff and of the special naval courts, which 
 can be summoned for the purpose in foreign ports. No 
 men can be discharged abroad without provision for 
 their restoration to their own country ; and when the 
 ship finally returns home to this country, the crew are 
 discharged before a public officer, who sees that the men 
 are duly paid their wages, and settles disputes. He also 
 forwards money for the men to their wives and families, 
 and in many of the larger ports sees that seamen who 
 belong to some distant place are provided with im- 
 mediate means of escaping from local temptations and 
 returning to their homes. 
 
 For such seamen as choose to invest their earnings, a 
 Seamen's Savings Bank is provided, into which men can 
 pay, and from which they can draw at every port in the 
 United Kingdom, in the same manner as from the Post- 
 
152 THE STATE IN ITS RELATION TO TRADE ch. 
 
 Office Savings Banks, of which Seamen's Savings Banks 
 were the forerunner. 
 
 Safety. — For this purpose also the State follows the 
 ship throughout her active employment. Passenger 
 steamers and ships carrying large numbers of emigrants 
 must be inspected by officers of the Board of Trade, and 
 must be reported to be safe ; and in the case of emigrant 
 ships they must also be reported to be properly fitted, 
 equipped, victualled, and manned. 
 
 The number of passengers is limited by the Board of 
 Trade. 
 
 For the purpose of avoiding collision, all ships are 
 required to carry certain lights, which are inspected by 
 officers of the Board of Trade. 
 
 For the same purpose all ships are required, when 
 they meet one another at sea, to obey certain rules ; 
 and these rules are matters not only of municipal but 
 of international obligation. 
 
 All ships are also required to carry a certain number 
 of boats. 
 
 Passenger steamships are I'equired to have properl}'- 
 adjusted compasses. 
 
 Special provisions are made with respect to grain 
 cargoes and deck cargoes o£ wood. 
 
 Unsafe ships may be detained by the Board of 
 Trade and its officers, subject to an appeal to a court of 
 .survey, and subject also to an action for damages, if in 
 the opinion of a jury the detention has been wrong or 
 improper. 
 
 The subject of unsafe ships has attracted much atten- 
 tion lately. Tlie losses of life at sea are no doubt 
 great, and much to be deplored ; nor shoul<l an^- effort 
 be spared which can niake them less. There are some 
 
xin SAFETY OF SHIPS 153 
 
 )i;i(l sliips : tlioio are many overladen ships : and, chief 
 cause of loss, there is recklessness and overhaste in navi- 
 gating ships. Nor are the relations of our seamen to 
 their employers, or their own condition when thrown 
 ashore amid the temptations of our seaports, what we 
 could wish them to be. But to allege that shipowners 
 as a rule are worse than other people, or that ships 
 are worse and more unsafe than they formerly were, 
 is a gross and unjust exaggeration. Our shipowners 
 have not made themselves masters of the carrying- 
 trade of the world by building and sailing bad and 
 unsafe ships ; and the loss of life at sea, so far as 
 can be ascertained, is, in proportion to our merchant 
 navy and its work, not greater but less than it was 
 in former years. 
 
 The operation of the measures which have recently 
 been adopted by Parliament in order to secure further 
 safety is extremely interesting. One of these remedies 
 is administrative, viz. the power given to the Board of 
 Trade to detain unseaworthy ships, a power which, 
 since the Plimsoll agitation, has been exercised through 
 the means of a large staff of local surveyors in most of 
 the ports of the United Kingdom. Another remedy i,^ 
 judicial, viz. liability to criminal prosecution for send- 
 ing an unseaworthy ship to sea. The latter of these 
 remedies has always been difficult, because with all the 
 intermediate agencies which modern trade requires, it is 
 seldom easy to bring home culpability or negligence to 
 the owner, whose greed may notwithstanding have been 
 the real cause of the unseaworthiness. But the criminal 
 remedy has been rendered absolutely ineffectual by the 
 administrative remedy. When a shipowner has been 
 prosecuted for sending a ship to sea in a grossly 
 
l.')4 THE STATE IN ITS RELATION TO TRADE CH. 
 
 unseawortliy condition, and the fact has been dis- 
 tinctly proved, the answer has been that the Board 
 of Trade might have stopped the ship, and did not 
 do so ; as if the Board of Trade and its officers 
 were ubiquitous and omnipresent. But however this 
 may be, the answer has been and will be accepted by 
 judge and jury as conclusive in answer to a criminal 
 charge ; and the criminal remedy for culpable unsea- 
 worthiness is therefore one which can seldom, if 
 ever, be enforced. Nor is the working of the ad- 
 ministrative remedy satisfactory. Many unsafe ships 
 are actually detained, and more are indirectly deterred 
 from going to sea. But the appeal for damages which 
 is given from a responsible department to a judge and 
 jury, who do not perhaps know the stem from the stern 
 of a ship, is an appeal from Philip sober to Philip drunk, 
 and tends to cripple administrative action. On the 
 other hand, to subject the shipowner to detention with- 
 out appeal would be to subject him to possible official 
 tyranny and caprice. Again, the power of detention in 
 isolated cases involves much more extensive interference. 
 When a particular ship is detained, say, for overloading, 
 the shipowner retorts with much justice, " Why do you 
 stop me when on the point of going to sea 1 Why not 
 tell me beforehand what you require 1 " And this the 
 Board of Trade cannot do without laying down fixed 
 rules both as to load line and as to other matters, 
 which would place the whole mercantile marine in 
 official fetters. Such are the difficulties of interfei'ence, 
 and they are as yet unsolved. 
 
 One cause of unseaworthiness, the most important 
 perhaps of all, is the law and practice of marine insur- 
 ance. A policy of insurance is in theory a contract of 
 
XIII SAFETY OF SHIPS 155 
 
 indemnity. But the practice of the trade and the 
 decisions of the judges have made it much more. A ship 
 can be insured so that her loss shall be a certain gain 
 to the shipowner, and the courts of law will enforce 
 this liability against the underwriter, I have seen a 
 letter from a shipowner regretting that a certain ship was 
 not lost ] and I have heard a shipowner complain that he 
 had been specially unlucky because an old ship of hi& 
 had been lost on her first voyage after he had sold her, 
 whereas if she had been lost whilst she belonged to him, 
 he would have realised enough from the insurance to 
 enable him to buy a good, new, modern ship ! In such 
 cases the shipowner may not purposely lose his ship, 
 but it is idle to suppose that he will take the same care 
 of her as if he were not insured, or insured only to a 
 moderate amount. The evil is one which it is not easy 
 to cure. It is very difficult to interfere with improper 
 contracts of insm'ance without interfering mischievously 
 with innocent and proper contracts. Further, it is not the 
 interest of any traders as a class to prevent over-insurance. 
 The underwriters, as a class, profit by it; and though the 
 individual underwriter who has to pay for a loss suffers, 
 and is often not unwilling to contest a bad case, the 
 law, which countenances over-insurance, does not enable 
 him to resist pa}'Tnent unless he can prove actual fraud 
 to the satisfaction of a jury ; and this he can seldom do, 
 not only from the inherent difficulty of obtaining evi- 
 dence, but because he comes into court in the character 
 of a man who, having made a bargain by which he turns 
 out to be a losei', is trying to escape from it. In the 
 excitement caused by the Plimsoll agitation the Govern- 
 ment did make an effort to amend the law of insurance. 
 A bill was introduced for this purpose at the beginning 
 
150 THE STATE IN ITS RELATION TO TRADE ch. 
 
 of the session of 1876. But other business intervened 
 and the bill was no more heard of. 
 
 Lighthouses, Harbours, and Pilots. — The State provides 
 these adjuncts to safe navigation, although the money by 
 which they are supported is raised by dues levied upon the 
 ships which use them. General lights and seamarks are 
 managed by the Trinity House and by tlie Scotch and 
 Irish Lighthouse Boards, under a certain control by the 
 Board of Trade ; and local lights, harbours, and pilots 
 are managed by local bodies, generally representative in 
 character. 
 
 Wrecks and Casualties. — When a ship is lost on our 
 own coasts careful provision is made for the purpose of 
 i^endering assistance and saving life, both by means of 
 life boats, which belong to and are managed by a 
 charitable association, and by means of the rocket 
 apparatus, which is worked by the coastguard arid by 
 voluntary brigades under the direction of the Board of 
 Trade. The coastguard also act as police in protecting 
 wrecked property, and the officers of customs acting as 
 receivers of wreck take charge of such property and 
 restore it to the owners. 
 
 Provision is also made for inquiries into the causes of 
 wrecks. A preliminary inquiry is first made in all cases 
 by the officers of the Board of Trade ; and in more im- 
 portant cases a public investigation is subsequently held 
 in judicial form before the wreck commissioner or before 
 two justices, aided by professional assessors. In cases 
 of culpable default by the masters or officers, these courts 
 have power to cancel or suspend their certificates. The 
 reports of all these investigations are made public. 
 
 Maritime Law. — The executive government thus 
 follows a ship throughout her career, from her first 
 
XIII GENERAI. OBSERVATIONS 157 
 
 construction to her final destruction. But in addition 
 to this constant intervention of the executive, the state 
 suppHes a code of special rules, in respect of collision, 
 liability for damage, salvage, insurance, and bottomry, 
 (fee, not to mention maritime prize and capture, which 
 constitute a large and special branch of the general 
 law ; which owe their existence to the necessities of 
 shipping ; and many of which have the peculiarity that 
 they are international as well as municipal. 
 
 General Observations. — Under these circumstances it 
 is interesting to see how large a part the state plays 
 in respect of this great national interest. The motive 
 power, the energy, the invention, the skill, the courage, 
 to which it owes its success, ar-e those of individual 
 Englishmen. Nor ai-e they in any way protected by 
 the state from the most severe competition. But the 
 state watches over, helps, fosters, restricts and regulates 
 a British merchant vessel from the day when her 
 materials assume the form of a ship to the day 
 when they finally lose that form, both by official regu- 
 lation and by a system of peculiar law. Whatever be 
 the result of these different actions of the state, one 
 thing is quite certain ; viz. that the aggregate efiect of 
 all of them has not been to destroy the prosperity 
 of this great interest, or to prevent a development unex- 
 ampled in the history of the world. The shipping of 
 the United Kingdom has increased from 3,397,000 tons 
 of sailing ships and 168,000 tons of steamships in 1850 
 to 3,85T,000 tons of sailing ships and 2,723,000 tons of 
 stejimships in 1880, and there is a considerable further 
 increase in 1881. Taking one ton of steam tonnage to 
 be equal to four tons of sailing tonnage, the tonnage 
 of the United Kingdom was 42 per cent, of the known 
 
158 THE STATE IN ITS RELATION TO TRADE cii. xiii 
 
 oversea tonnage of all the maritime countries of the 
 world in 1860, and 55 per cent, in 1880. No foreign 
 country, least of all our former rival, the United States, 
 comes any where near us. The current expenditure on 
 our ships and the income we derive from them are 
 enormous. The fixed capital employed in our shipping 
 is probably about £1 10,000,000, but the annual outgoings 
 on shipping, which constitute an invisible export, and 
 which give employment to an immense amount of 
 English labour, probably amount to more than one- 
 half of that sum ; whilst the income from our sliipping, 
 which returns to us in the shape of imports, is not less 
 than and probably more than £60,000,000 a year.^ 
 From these facts I should draw two conclusions ; first, 
 that this great interest has on the whole benefited and 
 not suffered by the action of the state ; and, secondly, 
 that, considering the magnitude of this interest, and its 
 successful development, it is one of which the nation 
 may well be proud, and in dealing with which hasty 
 and ill-considered measures are much to be deprecated. 
 
 ' See Mr. Giffen's paper on the use of import and export 
 statistics in the Journal of the Slalidical Society for June, 1882. 
 
CHAPTER XIY 
 
 ACTION OF THE STATE WITH RESPECT TO FOREIGN TRADE ; 
 ABANDONMENT OF PROTECTION AND DISCRIMINATIVE 
 DUTIES 
 
 Among the various actions of the state which are 
 intended to increase and foster trade, there is one form 
 of interference which in this country we have ceased to 
 practice, it is to be hoped, for ever ; I mean protection 
 of home against foreign industries. "Whether in the 
 older form of prohibition, or in the newer form of 
 differential duties, we have abandoned the attempt to 
 promote onr own industries by preventing our people 
 from buying the produce of the industries of other 
 nations. The subject is old and worn, but considering 
 the protectionist doctrines which still hold their ground 
 in other countries, and the recent attempt to revive 
 similar opinions in our own, it is worth while to state 
 once more as shortly as possible what are the 
 grounds of our present action, or rather inaction, in 
 this matter. 
 
 In the first place, as even protectionists admit, to 
 keep out anything which is made better and cheaper 
 abroad than at home, makes those of our own people 
 
160 THE STATE IN ITS RELATION TO TRADE cu. 
 
 who want that article pay more for it and get less of it, 
 or get it of worse quality, than they would do if allowed 
 to buy the foreign article. To keep out American corn 
 or Fi'ench silk makes people in England who want corn 
 or silk pay more for these articles and get them in less 
 quantity and of worse quality. The importance of this to 
 us, who import one-third of our food, and are every year 
 importing more and more of it, and of whose total 
 imports, amounting to more than £400,000,000, ninety 
 per cent, are either food or materials for our manufac- 
 tures, is obvious, and it might be sufficient to leave the 
 matter here. We are not likely to starve our working 
 population or to ruin our manufactures. But this is 
 only a part of the evil of protection, and does not go to 
 the root of the question. 
 
 Protection is intended for the benefit of producers at 
 the expense of consumei's ; for the benefit, that is to 
 say, of the landowner, at the expense of the rest of the 
 people ; for the benefit of the manufacturer at the 
 expense of those who use what he makes ; and it is 
 alleged by the advocates of protection that in the benefit 
 thus given to the landowner or manufacturer, and to 
 the persons whom they employ, is found a compensa- 
 tion, and more than a compensation, for the mischief 
 done to the consumer. 
 
 But this is not so. In the first place protection often — 
 perhaps generally — injures the very persons it is meant 
 to benefit. It makes them rely on the false support of 
 an artificial law, instead of on their own brains and 
 hands. The exclusion of competition deadens industry 
 and .skill. British shipping, for instance, never flourished 
 when certain trades were reserved to it by our naviga- 
 tion laws, so much as it has done since every ilag was. 
 
XIV EVILS OF PROTECTION 161 
 
 admitted to compete with it in every branch of our 
 trade. 
 
 But this may not always be the case. It is possible, 
 we must admit, that a weak industry may be kept alive 
 by excluding its foreign rivals. Englishwomen might 
 give more custom to Coventry, if they could not buy the 
 cheaper and better ribbons which are made at Lyons 
 and Basle. The Coventry ribbon-makers might for a 
 time make more profits and pay more wages. Assuming 
 this to be the case, the effect, not only to the women who 
 buy silk, but to the whole producing industry of the 
 country, will nevertheless be mischievous ; for we can 
 only pay for' the French and Swiss ribbons by sending 
 to France and Switzerland something which we make 
 better and cheaper than the French or Swiss can make 
 it ; so much better and cheaper, that it will bear the 
 cost of carriage, and yet be preferred to the French or 
 Swiss article. It may be iron, or cotton, or cloth ; and 
 it may be that we do not send it to France or Switzerland, 
 but to India or China, and that India or China in turn 
 sends tea or indigo to France, and that what we make is 
 so cheap and good that it bears all this cost of carriage, 
 to the great benefit of our own shipowners. It is im- 
 possible to trace the complicated course of trade, but one 
 thing is certain, viz. that we cannot buy the French or 
 Swiss ribbons without making and selling something 
 which we can make better and cheaper than ribbons, and 
 which consequently brings more profit to our manufac- 
 turer, and better wages to our workmen. If we put a 
 stop to the buying of French ribbons we also put a stop 
 to this better industry of our own, in order to en- 
 courage the inferior industry of the Coventry ribbon- 
 maker. Ribbons are a comparatively small industry. 
 
162 THE STATE IN ITS RELATION TO TRADE ch. 
 
 but wliat is true of them is true of all the larger 
 elements of trade — of cotton, cloth, iron, and agricul- 
 tural produce. We are all consumers, and we are all in 
 8ome sense producers. Regarded as consumers it is 
 admitted that protection is injurious to us; but what 
 is not so generally recognised, is that protection is 
 equally injurious to us considered as producers. It 
 prevents us from doing what we can do best. It makes 
 us produce what we produce badly and scantily, instead 
 of what we can produce well and abundantly. It makes 
 what we buy and use dearer and worse ; but at the 
 same time it also limits and reduces the business and 
 profits of our producers, and the wages they pay to 
 their workmen. 
 
 But this is not all. One protectionist step brings on 
 another. Every product of industry is a means, the 
 raw materials, so to speak, of other industries. In 
 making it dear and scarce we cripple them ; and they, 
 in their turn, must be protected. Keep out foreign 
 paper, and foreign books must be kept out. Keep out 
 foreign iron, and all that is made of iron — ships, 
 machinery, tools — must be kept out too. Keep out tools 
 and machinery, and all that tools and machinery produce 
 must be kept out also. And thus the protectionists get 
 into a vicious circle, in which everybody without excep- 
 tion is plundered or injured, and in which everybody 
 plunders, except the particular producer, who has such 
 natural advantages that he has no foreign rival. To him 
 protection brings no benefit, whilst he is tli^p victim of 
 other protectionists. And yet, he is the one who if 
 left to enjoy his natural advantages could and would 
 do more than any other for himself and his country. 
 T^verything is made dear to all consumers ; and all 
 
XIV EVILS OF PROTECTION 163 
 
 producers are restricted in production. If any gain 
 by the plunder it is the few who gain at the expense of 
 the many ; and the aggregate gain by plunder must be 
 very small as compared with the aggregate loss. Dear 
 living is ill compensated by high wages ; and, what is 
 still worse for the whole of the productive classes, they 
 are prevented from making the most which nature 
 has enabled them to make out of their labour and 
 skill. 
 
 M 2 
 
CHAPTER XV 
 
 Interference op the state in the form of restric- 
 tions ON special trades 
 
 General PrincijiHes. — In most of the cases we have 
 been considering there is little, if any, doubt about the 
 principles which should guide the relations of the state 
 to trade. That the state should enforce within certain 
 limits the obligation of contracts ; and that it should 
 determine weights and measures, and supply a standard 
 of value and medium of exchange ; is admitted by all 
 civilised nations, and by all philosophers. That the 
 state should not create monopolies where they can be 
 avoided, and should carefully limit them, where inevit- 
 able, is also scarcely disputed. That the state should 
 trade itself only where private interest will not supply 
 what is needed, or where the evils of monopoly cannot 
 otherwise be remedied, is a general maxim, in this 
 country at any rate. And finally we shall, most of us, 
 agree in condemning all attempts to protect native 
 industry by prohibitions or differential duties. 
 
 But we now approach a class of cases in which it is 
 more difficult to find any leading principle. They are 
 cases in which the state specially interferes with, 
 regulates, and rcsti'icts the freedom of private dealings 
 
CH. XV GENERAL PRINCIPLES 165 
 
 in special trades which are not monopolies ; sometimes 
 for the purpose of seeing that the bargain is duly per- 
 formed by the parties to the contract, or by one of 
 them ; but more often for the purpose of guarding some 
 interest outside the original dealing, and the interests 
 of the parties to it. 
 
 In dealing with this subject I find myself inevitably 
 dealing with the same class of questions with which 
 Mr. Stanley Jevons has dealt in his treatise on the 
 State in Relation to Labour ; and am disposed to agree 
 with him when he says (p. 6) that " We must rid our 
 minds of the idea that there are any such things in 
 social matters as abstract rights, absolute principles, 
 indefensible laws, unalterable rules, or anything what- 
 ever of an eternal and inflexible nature ; " and that 
 " The state is justified in passing any law, or even in 
 doing any single act, which without ulterior conse- 
 quences, adds to the sum total of happiness." " Not less 
 true is it," he says (p. 14), that "the modern English 
 citizen who lives under the burden of the revised 
 edition of the statutes, not to speak of innumerable 
 municipal, railroad, sanitary, and other bj^e-laws, is 
 after all an infinitely freer as well as nobler creature 
 than the savage, who is always under the despotism 
 of physical want — far freer too than the poor Indian, 
 who, though perhaps unacquainted with written law, 
 is bound down by the most inflexible system of 
 traditional usage and superstition," and that " it is 
 impossible that we can have the constant multiplication 
 of institutions and instruments of civilisation which 
 evolution is producing, without a growing complica- 
 tion of relations, and a consequent growth of social 
 regulations." At the same time I am disposed to think 
 
16G THE STATE IN ITS RELATION TO TRADE ch. 
 
 that though there are no absolute rules by which such 
 legislation as we are about to consider can be limited, 
 there are certain general principles or tendencies, which 
 in this country at any rate, afford some general notion 
 of the direction in which we should steer and do not 
 leave us wholly at the mercy of casual winds and waves. 
 Freedom the General Rule. — Imperfect as our experi- 
 ence is, it has suggested certain general conclusions in 
 favour of a larger amount of freedom— freedom of 
 thought, freedom of speech, and freedom of action, than 
 have been thought consistent with the welfare of the 
 community in earlier times. Though these conclusions 
 become false and misleading, if stated in the form of 
 an absolute and universal rule, they are, I think, 
 sufficiently well founded to warrant a general pre- 
 sumption in their favour, and to throw the burden of 
 proof on those who wish to restrict freedom. Every 
 grown person of the average European type under 
 a reasonably strong and good Government is likely to 
 do better for himself in matters of gain and profit than 
 the Government, or other persons are likely to do for 
 him ; and consequently, in general, the best thing to do 
 for him is to leave him free to use his mind, his body, 
 and his property as he finds best for himself. This 
 maxim, or something of the kind, seems to me to be the 
 sound foundation of modern political economy, and has 
 in that capacity won great triumphs for mankind. It 
 leaves abundant room for state interference on the 
 grounds of public policy, of morality, of health, of safety, 
 of the welfare of others, and even, in extreme cases, of 
 the welfare of the person with whose liberty it is 
 proposed to interfere. But it has, or ought to have, the 
 effect of throwing the burden of proof on those who 
 
XV CONSEQUENCES OF RESTRICTION 167 
 
 propose interference with liberty. A man ought to be 
 free to use his mind, his body, and his goods as he 
 pleases until it is shown that his freedom will be 
 followed by ill consequences of more importance than 
 the good of which he is deprived by the restriction. 
 It may be worth while to follow this a little farther, 
 and point out in some detail what are the consequences 
 of restriction. 
 
 Consequences of Restriction. — In the first place, any 
 restriction is almost sure to bring some bad consequences 
 to the person restricted. They may be very serious 
 consequences, or they may be very slight, and they may 
 be quite outbalanced by other consequences ; but in it- 
 self, to prevent a man from doing what his self-interest 
 leads him to do, does him some injury in pocket or in 
 person. These evils are generally of an obvious kind, 
 and are generally, when interference is proposed, suffi- 
 ciently brought to notice by the complaints of the 
 interests affected. 
 
 Blit in the next place, there are the unseen conse- 
 quences of restriction, which, as Mr. Jevons well 
 observes, are often of more importance than the seen 
 consequences. We do not know what amount of 
 positive mischief we may be doing by specific modes of 
 interference. No one supposed when the present system 
 of public-house licences was established, in the interest, 
 as it was believed, of public morality, that it would 
 lead to the creation of a large vested interest which 
 renders it very difficult to do what public morality now 
 I'equires. No one supposed when the registration of 
 bills of sale was enforced by law, that it would tend to 
 the encouragement and protection of the class of deal- 
 ings it was intended to discourage. 
 
168 THE STATE IN ITS RELATION TO TRADE ch. 
 
 Still less do we know what amount of good we may 
 be preventing, and this is the more important considera- 
 tion of the two. It may sound like an extreme and 
 absurd case, but it is nevertheless true and good as an 
 illustration, that if some extreme views which have been 
 recently promulgated concerning public safety had been 
 held and enforced in the time of Columbus, he might never 
 have been allowed to endanger his crews by embarking 
 them in his frail vessels on the hazardous voyage which 
 ended in the discovery of America. If the restrictions 
 on joint-stock enterprise which were in favour with 
 some of our older lawyers and economists had continued 
 to prevail, we should not only have been deprived of 
 the widespread and gigantic development of industrial 
 undertakings which has taken place in the last half 
 century, but we should have had no idea of what we 
 had lost. No one can tell at this moment what v/ould 
 happen in the way of increased production and conse- 
 quent comfort to mankind if all the protective systems 
 of the world were at once abolished. Restriction of 
 human freedom is often felt and seen to be a burden, 
 but our ignorance of its ultimate consequences is a far 
 stronger objection to it. 
 
 Again, a system of restrictive interference negatives 
 responsibility. It is impossible at once to dictate to a 
 man what he shall do and to hold him responsible for 
 the consequences. If a man is compelled to build a 
 ship, or a railway, or a house in a particular way, he 
 cannot be made answerable civilly or criminally for 
 any consequences which may arise from building it in 
 that way, however dangerous and destructive it may 
 prove to be. You may have the responsibility of the 
 state or the responsibility of the private person, but you 
 
XV CONSEQUENCES OF RESTRICTION 109 
 
 cannot have both. The adoption of the one forces you 
 to abandon the othei*. No judge or jury will find a 
 shipowner guilty of negligence, however flagrant, if his 
 actions, however culpable, have, or even might have, 
 passed the ordeal of Government supervision. No 
 employer can be held liable for consequences arising 
 from the misconduct of his servants if the state has 
 compelled him to employ them. This is not a matter 
 of mere speculation, but of practical experience, as is 
 shown by the failure of repeated attempts to procure 
 convictions for the crime of sending unseaworthy ships 
 to sea. 
 
 Again, the gain of a regulation enforced by law is 
 often more apparent than real. A certain uniformity 
 of good results is produced, but it is generally a low 
 average. It is what the worst men in the trade can be 
 compelled to do, not what the best men would do if 
 left to themselves. For the motives of self-interest, of 
 gain, of character, and of individual liability, a general 
 and compulsory rule is substituted. The worst men will 
 be made better, but the best men will probably become 
 worse, and will act down to the rule. There will be 
 more uniformity, but the average will most likely 
 be lower. 
 
 Again, the intervention of Government tends to make 
 persons less careful in looking after their own interests. 
 If I can rely on a Government brand, I am the less 
 likely to take pains to see that the article I buy is 
 what I really want. The tendency is clearly to make me 
 less energetic, less cautious, less able to help myself. 
 This is a most important consideration. A community 
 of men who are accustomed to look for everything to 
 Government is likely to be less productive, less strong, 
 
170 THE STATE IN ITS RELATION TO TRADE ch. 
 
 less noble, less able to help themselves in the struggle 
 for existence, than one in which each individual feels 
 the necessity of relying on himself. 
 
 There are plenty of other objections to different 
 forms of interference, such as the risk of corruption 
 amongst a host of inspectors and administrators, the 
 check to invention, ingenuity, improvement, and so on. 
 But I have indicated here only the great a priori objec- 
 tions to all restrictions on individual liberty. They are 
 of course only a jyriori objections, and do not and ought 
 not to prevail when it can be shown that there are still 
 greater objections to absolute freedom. But they are in 
 my judgment sufficient to justify us in withholding assent 
 to the proposition that there is no place for general 
 propositions, or that every act ought to be judged separ- 
 ately. I think there is ample ground for the general 
 proposition that when it is proposed to restrict in- 
 dividual liberty, it rests with those who make the 
 proposal to show that there will result from the restric- 
 tion some positive good, or some prevention of evil 
 which more than counterbalance the good which would 
 result from the free action which is to be restricted. 
 
 It is in this spirit, at any rate, that I shall speak of 
 the interference of the State with freedom of action, 
 which we are about to consider. 
 
 There is one suggestion mentioned in Mr. Jevons's 
 essay which, in connection with this branch of the 
 subject, seems to me to be especially important. It 
 is the suggestion drawn from his own very instruc- 
 tive article in the Contemporary Revierv for January, 
 1880, vol. xxxvii., pp. 177-192, in which he shows 
 that in many cases it is possible for the legislator 
 to resort to dii^ect experiment, and when he suggests 
 
XV INJURIOUS EFFECTS OF STATE INTERFERENCE 171 
 
 " that before passing any great act of Parliament 
 which will involve the whole of an extensive trade or 
 class in some irrevocable and costly change, we ought 
 to try experiments, and thus obtain the most direct 
 and pertinent evidence concerning the probable result." 
 I believe this to be a most fruitful suggestion. Ignor- 
 ance of the real eflPect of proposed measures is the 
 greatest difficulty of the legislator. In matters so 
 complicated and delicate, experience is often the only 
 guide, and experience procured by an experiment upon 
 a whole nation is too costly to be lightly risked. If it 
 were acknowledged to be right and proper to try local 
 and special experiments in legislation, not only would 
 many foolish interventions be prevented, but many 
 good rules and practices which now never get an 
 opportunity of proving and establishing their merits, 
 mio-ht be tried and brought into use. 
 
CHAPTER XVI 
 
 TESTING, BRANDING, TRADE MARKS, AND ADULTERATION 
 
 One form of the State interference with special trades 
 has for its object to make it sure that purchasers get 
 the particular article they want, in proper quantity, 
 qualit}^, or condition. The most extreme form of this 
 interference, fortunately exceptional in this country, is 
 one in which the State by general law, or local law, or 
 custom, undertakes to test the character of an article 
 of commerce, and to guarantee that it possesses certain 
 qualities. The following are the principal cases of this 
 interference, so far as I have been able to ascertain them. 
 
 Gun-Barrels. — Compulsory tests for gun-barrels are of 
 very early date. They seem to have existed under a 
 JRoyal Charter granted to the Mystery of Gun-makers as 
 far back as 1637, and have been continued by subsequent 
 statutes. These statutes were consolidated and re-enacted 
 in 1868 by the Act 31 & 32 Yict. ch, 113. Under this 
 act all barrels of guns or small arms of any kind must 
 be proved and stamped either at the London or the 
 Birmingham proof-house, and are not allowed to be sold 
 in this country or exported unless so proved and stamped. 
 The proving is in the charge of bodies representing 
 the trade, and fees are paid to cover the expenses. 
 
CH. XVI CHAIN CABLES AND ANCHORS ACTS 173 
 
 From tlie absence of complaint it may be presumed that 
 this system works satisfactorily to the trade. It is to 
 be observed that it is founded upon the privileges of 
 the now obsolete guild ; and also that there is involved 
 in it the important element of public safety, over and 
 above any commercial advantage which the stamping 
 may be supposed to give to the articles sold. 
 
 Cham Cables and Anchors Acts, 1864, 1871, and 1874 : 
 27 & 28 Vict. ch. 27; 34 & 35 Vict. ch. 101 ; 37 & 38 
 Vict. ch. 51. — Under these modern acts certain public 
 bodies, to which the Government have power to add 
 others, are authorised to erect testing-machines, and 
 these machines are inspected and licensed by the Board 
 of Trade. All chains and anchors sold for the use of 
 British ships must be tested at one of these machines 
 according to a scale approved by Order in Council, and 
 must be stamped accordingly, under a penalty on both 
 buyer and seller. A contract for the sale of a chain 
 cable implies a warranty that it has been so tested. In 
 this case also there is involved the element of safety to 
 human life, with the addition that the practice of marine 
 insurance has a tendency to weaken the motives which 
 would otherwise induce the shipowner to provide ade- 
 quately against danger and loss by seeing to the good- 
 ness of his own anchors and cables. 
 
 Hall-marking of Gold and Silver Plate.^ — Under a 
 number of old and confused statutes certain gold and 
 
 ^ A full account of this practice will be found in the Reports 
 of the Select Committee of 1878 and 1879. Pari. Papers 328 of 
 1878 and 191 of 1879. This Committee condemned the duty ; 
 a majority supported compulsory hall-marking, but a strong 
 majority, including Mr. Goschen, Mr. Courtney, and Mr, 
 Thomson Hankej', condemned it. 
 
174 THE STATE IN ITS RELATION TO TRADE ch. 
 
 silver articles are required to be of a certain standard 
 quality, and to be tested and marked with a certain 
 stamp by certain bodies, the chief of which is the 
 Goldsmiths' Company. These statutes no doubt origi- 
 nated in the desire to keep the precious metals and all 
 articles made out of them of one standard quality, that 
 quality being the quality of the metal used in the 
 coinage. But in the case of gold there are now six 
 diffei"ent standards, which have been adopted to meet 
 the requirements of trade ; and most gold articles in 
 common use are also expressly exempted. A great 
 number of silver articles are also exempted, leaving 
 silver plate almost the only article still subject to 
 this antiquated law. The machinery is as imperfect as 
 the law. There is no security for the due application 
 of one uniform test by the different bodies charged with 
 the duty of hall-marking. There is also an anomalous 
 and mischievous duty on silver plate, maintained 
 through the medium of the hall-marking system. The 
 majority of the London trades are in favour of the 
 retention both of the duty and the compulsory hall- 
 mark, a circumstance which is consistent with the 
 allegation that the compulsory system they advocate 
 is protective in its character. On the other hand, the 
 assailants of the present law complain that the system 
 of hall-marking, coupled with the duty, not only operates 
 to the exclusion of foreign plate, but interferes with 
 manufacture at home, and impedes the impoi'tation of 
 foreign manufactured silver. The manufacture of silver 
 plate is on the decline in England, whilst in the United 
 States, where there is no hall-marking, and where the 
 makers trust to their own naarks, it is rapidly 
 progi'essing. 
 
XVI HERRING-BRAND 175 
 
 Herr ing-hr and. ^ — In Scotland a system exists under 
 which officers of the Scotch Fishery Board examine and 
 brand the casks of cured herrings of those dealers, but 
 of those dealers only, who choose to have the brand 
 applied, and thus certify to the quality of the fish 
 contained in them. The expense is paid for by fees 
 charged to the persons whose casks are bi'anded. Com- 
 plaints have been made by some curers that the operation 
 of this system is to reduce the standard of goodness, and 
 to injure the trade ; and a select committee was appointed 
 in 1881, who by a large majority came to the conclusion 
 that the trade generally approved the system of branding ; 
 that the catch and sale of fish had increased under it : that 
 although the operation was voluntary and accompanied by 
 payment of a fee, three-fourths of the trade elected to 
 submit to the brand ; and that the smaller fishermen 
 were in favour of it, because it enabled them to com- 
 pete with the larger firms whose produce and brands 
 would be well known in the market without any official 
 guarantee. It is to be observed that the system is 
 voluntary ; that it has been long in operation ; that 
 the brand is well kno^vn on the Continent ; and 
 that the majority of the trade are strongly in its 
 favour. Under these circumstances it is not to be 
 wondered at that the select committee should refuse to 
 disturb a system w^hich was working so well, whatever 
 may be thought of some of the arguments adduced in 
 support of it. 
 
 Cork Butter Market. — In this important market a 
 
 system of examination and branding prevails under 
 
 which in practice — if not in law — producers of butter 
 
 are prevented from selling it, unless it has been branded 
 
 1 Report of Select Committee, Pari. Paper 393, 1881. 
 
176 THE STATE IN ITS RELATION TO TRADE ch. 
 
 by an official inspector. Of this system the Royal 
 Commissioners on Agriculture report as follows : — 
 
 " The way in which trade may be hampered and its 
 progress obstructed by the abuse of arrangements 
 originally designed for its promotion is strikingly illus- 
 trated by the history of the Cork Butter Market, which 
 will be found in the evidence submitted to your 
 majesty. 
 
 " Whatever the value of the Cork Butter Market in 
 former times to the farmers may have been, it has now 
 ceased to be an institution that can be favourably 
 spoken of. Owing to the greater facilities for the transit 
 of produce there is a much larger demand for fresh 
 butter than formerly, and a corresponding diminution 
 in the value of very salt butter. 
 
 " The present arrangements of the Cork Butter 
 Market evidently tend to reduce the value of the 
 highest class of butter, and to unduly raise that of a 
 lower class, so as to produce an approximate uniformity 
 in price, which is not good either for the farmer or for 
 the consumer. 
 
 " The Cork Butter Market is in no real sense an 
 open market ; on the contrary, the control of the 
 Corporation of Cork over it is illusory, and the manage- 
 ment is in the hands of a close corporation, who dis- 
 courage individual enterprise, and through the system of 
 advances to farmers, keep them in a state of subjection 
 injurious to their interests as agriculturists." ^ 
 
 Observations on the above Cases. — The first thing which 
 strikes one about these cases is that they are exceptional, 
 comprising only five out of the thousands of articles 
 which are bought and sold every day. The second point 
 is the distinction between the cases in which the use of 
 the official test or brand is voluntary, and the cases in 
 
 1 See Pari. Paper, C. 3309, p. 23, 1881. 
 
XVI TRADE MARKS 177 
 
 which it is compulsory. In the former the interference 
 is very slight ; it is a convenience offered, not an obliga- 
 tion imposed, and it is consequently not open to many 
 of the objections which apply to a compulsory test. 
 Lastly, as regards the cases in which the use of the 
 brand is compulsory, it is to be observed that 
 in the case of gun-barrels, and of chains and 
 anchors, the safety of human life is concerned, and 
 not simply the advantage or convenience of the pro- 
 ducer or consumer ; and that in the two other cases, 
 viz., those of compulsory hall-marking and of the Cork 
 butter brand, the operation of the system is eminently 
 unsatisfactory, and affords no legitimate precedent for 
 further interference of the same kind. I am led to 
 make these observations, because many persons, in- 
 cluding among them distinguished economists, have 
 appealed to these cases as affording precedents for 
 invoking the interference of the State for the purpose 
 of protecting purchasers, to an extent which I believe 
 to be mischievous. The rule " Caveat emptor " is the 
 sound general rule, economically and socially as well 
 as legally, to which no exception should be allowed 
 unless for strong and special reasons. Official guaran- 
 tees of articles sold in the market, especially if compul- 
 sory, are objectionable on many grounds, but principally 
 because the keen self-interest of private purchasers is 
 sure on the whole to produce a higher quality and 
 character of goods than any official test ; and because 
 to teach people to buy and sell according to an official 
 report, instead of using their own judgment, weakens 
 their energy and intelligence. 
 
 Trade Marks. — There is the less reason for further 
 extension of the official branding or testing system, now 
 
 N 
 
178 THE STATE IN ITS RELATION TO TRADE ch. 
 
 that the State has, by legislation on the subject of trade 
 marks, recognised to the full the importance of giving to 
 manufacturers the means of making their own brands 
 known and of protecting them from imitation. A quasi 
 property in trade marks has long been recognised by 
 the courts of law, and the remedies for infringement 
 of trade marks were strengthened by statute in 1862 
 (25 & 26 Vict. ch. 88). But the Legislature has 
 carried the protection of trade marks much further by 
 the Act 38 and 39 Vict. ch. 91, under which every 
 manufacturer and trader has the right of registering 
 his trade mark in a public office. This registration 
 gives him at once a jyrima facie exclusive right, and 
 after five years a conclusive right, to it, and no one else 
 at home or abroad can then use or imitate it. Its 
 value to him will depend on the goodness of his wares 
 and the character they bear ; and the system thus 
 acts, not as an official brand must generally do, as 
 a premium on mediocrity, but as a stimulus to 
 special excellence. The statutes above mentioned are 
 suj^plemented by a provision in the Customs Act, 39 
 & 40 Vict. ch. 42, which prevents foreign goods with 
 English trade marks from being imported into the 
 United Kingdom. 
 
 Adulteration Acts. — Another form of interference in 
 favour of purchasers is to be found in the Adulteration 
 Act, 38 & 39 Vict. ch. 63, amended in 1869. Under 
 these acts it is a crime to mix any ingiedients with 
 articles of food so as to make them injurious to health, 
 or to mix any ingredient with drugs so as to affect their 
 quality injuriously, or to sell any articles of food or 
 drugs so mixed, or to sell any article of food or drug 
 which is not what the purchaser asks for. If mixed 
 
XVI ADULTERATION ACTS 179 
 
 with innocent ingredients the article must be labelled 
 accordingly. 
 
 Local authorities are empowered to appoint analysts, 
 and purchasers of food or drugs may take them to the 
 public analyst to be examined. Public officers may 
 obtain samples of food or drugs and submit them to the 
 analyst. If the analyst proves the article to be such 
 as the act forbids, the seller is subject to a penalty- 
 Tea is to be examined on importation by an analyst 
 appointed by the Customs, and if unfit for food to be 
 destroyed. 
 
 This act embodies two different principles. The one 
 is the prohibition of the sale of articles which are in- 
 jurious to health, an object which has always been con- 
 sidered to call for special intervention, as will appear 
 more fully in the next chapter; the other is the 
 principle that a seller is bound to perform his contract 
 in good faith, and to use no concealment. When an 
 adulterated article is injurious to health the sale is ipso 
 facto criminal. When an article is adulterated, but the 
 adulteration is not injurious to health, the seller, is 
 bound to give ample notice of what he is selling. In 
 this there is no official interference with freedom of con- 
 tract as generally understood The further provision for 
 examination by a public analyst only provides a sum- 
 mary and easy mode of enforcing both branches of the 
 act by means of a trustworthy expert, instead of having 
 recourse to the expensive and inefficient remedy afforded 
 by the common law in the shape of a trial before a 
 jury assisted by what is known as scientific evidence. 
 
 To similar principles may be referred an act of last 
 session, 45 & 46 Vict. ch. 41, s. 6, which requires 
 adulterated coffee to be so labelled as to give notice to 
 
 N 2 
 
180 THE STATE IN ITS RELATION TO TRADE ch. xvi 
 
 the purchaser of the substances with which it is 
 adulterated. 
 
 Also an Act of 1866 (29 Vict. ch. 37) which requires 
 sacks of hops to be marked ^vith the name of the 
 grower, the quantity and the year of growth ; and 
 prohibits the packing of foreign hops in English 
 bags. 
 
 Also a clause in the Customs Acts, which requires 
 foreign plate to be marked with the letter F. 
 
 Also an Act of 1869, 32 and 33 Vict. ch. 112, 
 amended in 1878, which makes it a criminal offence to 
 kill or dye agricultural seeds, or to sell seeds so killed or 
 dyed with intent to defraud purchasers. 
 
 Of some of these provisions it may perhaps be 
 doubted whether they are, as is generally professed, for 
 the protection of consumers, or for the protection of 
 certain classes of producers. 
 
CHAPTER XVII 
 
 INTERFERENCE OF THE STATE WITH SPECIAL TRADES IN 
 ORDER TO SECURE HEALTH AND SAFETY 
 
 In the cases we have been considering, the inter- 
 vention of the State is supposed to have for its 
 principal object or one of its principal objects the 
 protection of the purchaser in the performance of 
 the contract. It interferes to see that he gets what 
 he bargained for. But there is another large class 
 of cases in which the State intervenes with a view 
 to some object outside the contract, generally for pur- 
 poses connected with health or the protection of human 
 life, and in some cases, for the purpose of preventing 
 serious annoyance. 
 
 In some cases it is for the purpose of protecting the 
 workman or others employed in the business, as is the 
 case with the Factory Acts, the Mining Acts, and a 
 large part of the Merchant Shipping Acts. These cases 
 have been already discussed by Mr. Stanley Jevons in 
 his Treatise on the Relation of the State to Labour, and 
 I therefore need only make a general reference to 
 them. In a second class of cases the persons to be 
 protected are the purchasers and users of some 
 commodity or convenience, such as passengers by ship 
 
182 THE STATE IN ITS RELATION TO TRADE ch. 
 
 or railway, who are or are supposed to be unable to 
 protect themselves. In a third class of cases the 
 persons to be protected are persons outside the special 
 business concerned, who may be injured in life or 
 health or otherwise prejudiced by the manner in which 
 it is carried on. The different cases however run into 
 one another, and it will be sufficient to mention them 
 shortly under the heads of the subject-matter with 
 which they are concerned without distinguishing too 
 curiously the special classes who are to be protected. 
 
 The principle of interference for the purpose of 
 securing life, health, and freedom from annoyance is 
 well known to the common law. For private injury 
 arising from culpable negligence on the part of a trader 
 there is a remedy by civil action for damages, and often 
 also a further remedy by criminal proceedings. For 
 everything in the nature of a public nuisance — a word 
 of very wide and ill-defined meaning — there are also 
 remedies at common law. But these common law 
 remedies have been found insufficient, and modern legis- 
 lation has surrounded a number of trades with special 
 regulations and conditions, and has often enforced these 
 conditions by the appointment of inspectors whose 
 business it is to see that the law is enforced. It cannot 
 be too often repeated that these remedies, though gener- 
 ally stated in the statutes which create them to be 
 cumulative, and to be an addition to those of the common 
 law, are and must be really in substitution for those 
 remedies. When the State prescribes the way in which 
 a thing is to be done — still more, when by its own 
 officer it certifies that the thing has been done, it cannot 
 afterwards hold the doer liable for the consequences. If, 
 therefore, the precaution ordered is unwise or ineffectual 
 
XVII THE PROTECTION OF LIFE, ETC. 183 
 
 it may prove to have an efifect to the contrary of what 
 was intended. Ships may be sent to the bottom by Act 
 of Parliament, and no one is to blame. Although this 
 is no sound argument against interference where inter- 
 ference is shown to be both wise and necessary, it is an 
 argument which, independently of any consideration for 
 the interests of the trade which is interfered with, 
 should make philanthropy cautious in the selection of 
 those regulations and inspections which it so constantly 
 and passionately advocates. 
 
 There is one form of State interference which is open 
 to none of these objections, and which has been 
 considerably extended of late, viz., that of public inquiry 
 into a casualty or death, with the view of ascertaining 
 the causes. The effect of such an inquiry is twofold. 
 If the casualty has happened from culpable neglect or 
 default, it brings home the fault to the culpable party, 
 and often exposes him to actions for damages or other 
 proceedings. If the accident has arisen from preventible 
 causes it helps the parties interested to provide against 
 similar causes in the future. Such inquiries are founded 
 on the same principle as the old coroners' inquests. 
 They have been applied in different forms to outbreaks 
 of disease ; to ships ; to railways ; to mines ; and in the 
 last session to boiler explosions; and will probably 
 still further receive application. 
 
 I proceed to give shortly a list of some of the princi- 
 pal instances of the special State interferences with 
 trade, to which this chapter relates. 
 
 Shiiys. — To State interference with shipping for pur- 
 poses of safety, I need only refer here, as it is more 
 fully described above in Chapter XIII. 
 
 Hallways. — In the case of railways, the permanent 
 
184 THE STATE IN ITS RELATION TO TRADE CH. 
 
 works and all their adjuncts must be inspected and re- 
 ported to be safe by an officer of the Board of Trade 
 before the line can be opened for passenger traffic. 
 After the line is opened the Board of Trade have 
 power to inspect it, and report upon it. The Board of 
 Trade have also various powers with respect to the 
 ci^ossing of railways, including a power with respect to 
 railways authorised since 1863 to require a bridge to be 
 substituted for a level crossing. They may give power 
 to take land to prevent immediate danger, and may 
 require screens to be erected to prevent horses from 
 being frightened. 
 
 The Board of Trade also require and publish returns of 
 all accidents, and have the power of inquiring into the 
 causes of all accidents on railways, &c. This important 
 power is constantly and regularly exercised, and the 
 results are made public. 
 
 Tramivays. — Before a tramway can be opened for 
 passenger traffic it must be inspected by an officer of 
 the Board of Trade and certified to be fit for use. The 
 Board of Trade have also power to allow or disallow 
 bye-laws regulating the use of a tramway ; and, in the 
 case of proposals to use steam on tramways, to grant 
 licenses under such conditions as may be needed for 
 public safety. 
 
 Hackney Carriages are subject to license, inspection, 
 and regulation, both in London and in other towns. 
 The case is worthy of special notice because it is one, 
 and perhaps the only one, in which, there being no 
 monopoly or privilege, the State, in regulating the ser- 
 vice, also fixes the price. This point has been adverted 
 to above, in Chapter VIII. 
 
XVII OFFENSIVE TRADES 185 
 
 Unwholesome Food. — Public officers are authorised to 
 inspect and examine all articles of food exposed for 
 sale, and if they appear to them to be unwholesome or 
 unfit to be used as food, may seize them, and take the 
 articles and their owner before a Court of Summary 
 Jurisdiction, which may order the articles to be destroyed 
 and may fine the owners. 
 
 The adulteration of food and drugs has been referred 
 to in the previous chapter. 
 
 Offensive Trades. — Certain trades which are ofiensive 
 to the neighbourhood— such as those of bone-boilers 
 and tallow-melters — cannot be established without the 
 consent of the local authority, and if already estab- 
 lished may be suppressed, if they are pi'oved to be a 
 serious nuisance.^ 
 
 Gas. — The acts relating to gas contain various 
 stringent provisions against allowing the waste products 
 of gas manufacture to become a nuisance by fouling air 
 or water.2 The case deserves special notice, because 
 the waste products of gas have, by recent discoveries, 
 become the raw materials of dyeing stuffs, creosote, 
 artificial manures, and other products, the making and 
 sale of which promises to be, if it is not already, as profit- 
 able as the manufacture of gas itself. The secondary 
 effect of the statutory provisions which pi-event them 
 from being thrown into and polluting our rivers has 
 been to quicken invention, and promote profitable trade. 
 
 Electric Lighting. — By a statute passed last Session (45 
 & 46 Vict. ch. 56), provision is made that in each 
 license or order for electric lighting regulations shall 
 be introduced to prevent danger by fire, electric shock, or 
 
 1 Public Health Act, 1875, §§ 116 to 119. 
 
 2 Public Health Act, 1875, §§ 112 to 116. 
 
186 THE STATE IN ITS RELATION TO TRADE ch. 
 
 otherwise ; and the Board of Trade have, in addition, 
 power to make such further regulations as they think 
 necessary for these purposes. 
 
 Chemical Works.— ^j the 44 k 45 Vict. ch. 37, 1881, 
 it is provided that in order to prevent the escape of 
 noxious gases, which are a nuisance to the neighbour- 
 hood, works for manufacturing alkali, sulphuric acid, 
 nitric acid, chemical manure, sulphate or muriate of 
 ammonia, and bleaching powder or liquor, must be 
 registered, and must be inspected by a Government 
 officer to see that the act is obeyed. In certain cases 
 specific rules and conditions are made for the conduct of 
 the manufacture, and in other cases it is made obliga- 
 tory on the manufacturer, under sevei'e penalties, to 
 use the best practical means to prevent the escape of 
 noxious gases. 
 
 Smoke.— \JnAeY the Public Health Act 1875, ss. 91, 92, 
 furnaces in manufactories which do not consume their 
 own smoke, and chimneys, not being the chimneys of 
 private dwelling-houses, which send forth black smoke, 
 are declared to be nuisances, and local authorities are 
 empowered and required to abate them. 
 
 Exjjlosives. — By the Act 38 Vict. ch. 17, 1875, 
 very elaborate provisions have been made for regulat- 
 ing, and in some cases preventing altogether, the 
 manufacture, storage, carriage, and sale of gunpowder 
 and other explosives. The administration is in the 
 hands of the Home Secretary, aided in certain cases by 
 the Board of Trade, and also by local authorities. 
 Provision is made for inquiries into accidents. The 
 object is, of course, the public safety. 
 
 Buildings. — Under the Public Health Act, ss. 155 to 
 IGO, local authorities have the power to determine the 
 
XXII LODGING-HOUSES-PUBLIC-HOUSES 187 
 
 line of frontage of houses which are rebuilt ; and to 
 regulate the width of new streets, the structure of new 
 buildings, the space which is to surround them, and their 
 drainage. 
 
 Powers for similar purposes are given to the local 
 authorities in London, so that no one can add to his 
 house without the leave of an official surveyor. 
 
 Lodging-houses. — By the Public Health Act 1875, ss. 
 71 to 90, the letting of certain cellar dwellings is 
 prohibited altogether, and local authorities are required 
 to keep a register of, and to inspect and regulate, all 
 common lodging-houses. They are to fix the number of 
 lodgers, and to see that cleanliness, ventilation, and 
 water supply are provided, and that precautions are 
 taken against the spread of disease. 
 
 It has already been noticed in Chapter X. that muni- 
 cipal authorities have in certain cases power to pull 
 down bad houses and supply workmen's dwellings 
 themselves. 
 
 Bakehouses— By 26 & 27 Vict. ch. 40, 1863, specific 
 regulations are made for the cleanliness of bakehouses, 
 and for separating them from sleeping places, and local 
 authorities are required to enforce these regulations. 
 
 Slaughter-houses. — Under an Act of 1847 (10 & 11 
 Vict. ch. 34, s. 135, and 125 to 131) these must be 
 registered and licensed by the local authority, and are 
 subject to inspection and to regulations to be made by 
 the local authority for the purpose of preventing cruelty 
 and preserving cleanliness. 
 
 Public-houses. — It is needless and impracticable in a 
 treatise of this nature to do more than refer to the well 
 known and much debated laws by which the State has 
 interfered with this great trade. It is a very remarkable 
 
188 THE STATE IN ITS RELATION TO TRADE ch. 
 
 case, because the State, anxious as it has no doubt been 
 to promote public health and morality, has managed by 
 its interference to create a gigantic . vested interest 
 partaking of the character of a monopoly, whose 
 political influence and power is such as to render it a 
 matter of the greatest difficulty either to introduce 
 freedom of trade, or to impose further regulations and 
 restrictions in the interest of the public health and 
 morality. 
 
 Theatres. — Under an act of 1843, (6 & 7 Vict. c. 68), 
 every theatre in London or in any place where the 
 Queen resides must be licensed by the Lord Chamber- 
 lain, and in other places by the Justices of the Peace. 
 Rules may be made for the regulation of the theatre, 
 and in case of a breach of the rules, or other miscon- 
 duct, the license may be withdrawn and the theatre 
 closed. 
 
 All plays must be submitted to the Lord Chamberlain 
 for his approval before they are acted, and he may 
 forbid any play to be acted which he thinks injurious 
 to good manners, decorum, or the public peace. 
 
 In effect the Censorship over the stage is complete 
 and absolute. 
 
 Cattle. — By various acts, and now by 41 & 42 Vict, 
 ch. 74, 1878, known as the Contagious Diseases 
 (Animals) Act, very stringent regulations have been 
 made to prevent the spread of disease in cattle. The 
 following is an official description of its purport : — 
 
 First, in regard to home stock, the act deals most 
 stringently with disease in the homesteads, and seeks 
 to confine infection to those centres, leaving the 
 movement of animals in the country generally as free 
 from restriction as possible. Animals found to be 
 
XVII GENERAL OBSERVATIONS 189 
 
 affected with pi euro-pneumonia or foot and mouth 
 disease, or swine fever, in a market, railway station, 
 grazing park, or other like place, or during transit, are 
 to be detained ; but those which have been herded with 
 them areyj'ee to move as if no disease had been detected. 
 Secondly, in regard to the foreign animals trade, the 
 act proceeds on the assumption that all imported stock 
 is to be slaughtered at the place of landing, leaving to 
 the Privy Council a certain amount of discretionary 
 power, guarded, however, by strict conditions, to pro- 
 hibit importation altogether from some countries, and 
 to permit it under modified restrictions from others. 
 
 General Observations. — The above does not pretend to 
 be a complete or exhaustive list of State interferences 
 of this description, and if it were complete to-day, it 
 would be incomplete to-morrow, for new circumstances 
 constantly call for fresh interference. There is in it, 
 however, enough to show that the State will and does 
 interfere whenever a strong enough case is made out. 
 
 As to the result of this kind of interference it is 
 difficult, if not impossible, to give a general or an abso- 
 lute answer. In many of the cases mentioned, probably 
 in most, the interference has no doubt to some extent, 
 directly or indirectly, effected its purpose. " To call 
 public attention to an evil is in itself a remedy," was 
 the observation of a wise minister ; and the passing of 
 a law may have a powerful effect even if not actually 
 enforced. But I believe that it would, in most of the 
 above cases, be extremely difficult to ascertain positively 
 by examination of the results how far the interference 
 has been successful in effecting the objects for which it 
 was intended. Our present statistics are of little value 
 
190 THE STATE IN ITS RELATION TO TRADE ch. 
 
 where the causes of the facts which they record are 
 numerous and complicated. Post hoc for propter hoc 
 is the commonest of fallacies, and as the statistics 
 are generally collected by the same hands which 
 administer the remedies, there is abundant room for 
 self-decejDtion. I have tried very hard to ascertain 
 the results of the laws which for half my life I have 
 been helping to administer, and I am quite unable to 
 say with any degree of accuracy what amount of evil 
 has been prevented by them. Still more difficult is it 
 to say whether, with the evil, any and what amount 
 of good has been prevented. These observations are 
 made not for the purpose of preventing interference, but 
 of showing the need for caution. 
 
 The ever-increasing complexity of our society ; the size 
 of our towns ; the congregation of many men in small 
 spaces ; the vastness of our industrial organisations, 
 and the consequent difficulties of exercising free indi- 
 vidual action, and of enforcing individual liability ; the 
 progress of knowledge, pointing out dangers in com- 
 mon life which in former times were not apprehended 
 and which can often be successfully attacked only by 
 some form of common action such as the State alone 
 can supply ; the progress of invention, which brings 
 with it, not perhaps greater danger to life, but danger 
 to life on a larger scale; all these point to necessities 
 for increasing intervention on the part of governments, 
 central or municipal. But on the whole, the danger 
 at present appears to me to lie in the direction of 
 too much restriction, not of too much freedom. Legis- 
 lative interference cannot be too cautiously applied. 
 There is the great difficulty of making any general 
 rule which shall apply to the infinite variety of human 
 
XVII GENERAL OBSERVATIONS 191 
 
 dealings and circumstances, even in the best known 
 and commonest trades ; and there is the still greater 
 difficulty of foreseeing future circumstances, and of 
 altering rules as the ever-changing circumstances of 
 all trades require. If, as is frequently the case, an 
 attempt is made to meet these difficulties by giving a 
 power of discretionary interference to a public depart- 
 ment, the effect is to give the department absolute and 
 arbitrary power. It must be remembered that in these 
 technical matters the collective wisdom of a govern- 
 ment department in a special case, means generally the 
 wisdom of the particular inspector or officer who has 
 examined the case. In proportion as the action is 
 transferred from him to the higher officers of the depart- 
 ment, the special knowledge of the case diminishes also. 
 A member of the cabinet cannot be expected to know 
 much about the strength of a particular boiler, or the 
 efficiency of a given safety-valve. These objections 
 to intervention impress themselves strongly on those 
 who, like myself, have been engaged in central adminis- 
 tration. They are met to some extent by transferring 
 the responsibility from the central government to local 
 authorities ; and, as will be seen from the foregoing 
 references, recent legislation has taken a strong turn in 
 this direction. That it has done so is well, not only for 
 the matter in hand, but for the general political future 
 of the country, which depends so largely on the sound- 
 ness and vigour of our local institutions. 
 
 There is, however, another objection which is not met 
 by any transfer of the power of intervention to local 
 bodies; the objection, namely, that it may unduly 
 restrict individual freedom. This is a subject on which 
 it is difficult to avoid misunderstandiner. The sacred 
 
192 THE >STATE IN ITS RELATION TO TRADE ch. xvii 
 
 name of freedom has been largely used of late by those 
 who were not formerly its friends, to uphold a very 
 different cause, viz. the sanctity of vested interests. 
 With such advocacy of freedom I have no sympathy. 
 But that there is a real danger to true freedom, and to 
 the sort of character which it creates, in the constant 
 demand for Government interference, I cannot doubt. 
 Treat grown men or women as incapable of judging and 
 acting for themselves, and you go far to make them 
 incapable. Our daily life is beginning already to be 
 hedged round by inspections, regulations, and prohibi 
 tions. The coming democracy has much of promise in 
 it ; but one of its failings is impatience. It cannot bear 
 to see an evil slowly cure itself, which can, as it 
 imagines, be cured at once by the use of its own over- 
 whelming force. It is passionately benevolent, and 
 passionately fond of power. To preserve individual 
 liberty in trade, as in other matters, from the impatient 
 action of philanthropy, will probably be one of the great 
 difficulties of the future. 
 
CHAPTErv XVIII 
 
 TAXATION OF TRADE DV THE STATE 
 
 All taxation has a tendency to reduce trade ; it 
 diminishes the means of buj'ing and selling, and con- 
 verts what might be used for the purpose of production 
 and exchange, to purposes which are immediately 
 unproductive. But it is scarcely necessary to say that 
 trade reaps the full benefit of a judicious Government 
 expenditure on law, on police, on education, and also 
 from expenditure on the army and navy, so far as these 
 are properly used for purposes of defence and protection. 
 
 But this is not the place to discuss the general effect 
 of taxation, or the nature and merits of different taxes, 
 and the indirect modes in which they affect trade. It 
 will be sufficient here to point out what are tlie taxes 
 levied by our Government which directly affect buying 
 and selling. They consist, in the first place, of taxes on 
 commodities, which raise the price to the seller, and 
 which thus contract sales, and reduce consumption. Of 
 these there are — 
 
 1. Taxes on commodities %m,ported fi'om abroad . 
 
 Tea produced in 1881 £.3,974,000 
 
 Coffee 189,000 
 
 o 
 
194 THP] STATE IN ITS RELATION TO TRADE ch. 
 
 Cocoa £52,000 
 
 Dried fruits 517,000 
 
 Spirits 4,223,000 
 
 Wine 1,33G,000 
 
 Tobacco 8,838,000 
 
 Other articles 650,000 
 
 2. On commodities produced in the country. 
 
 Spirits produced in 1881 £14,273,000 
 
 Beer 8,530,000 
 
 Gold and silver plate 68,000 
 
 In the second place there are license duties on the 
 following trades : sellers of beer, wine, and spirits ; 
 distillers, brewers, keepers of refreshment houses, dealers 
 in game, auctioneers, pedlars, pawnbrokers, patent 
 medicine sellers, dealers in gold and silver plate, playing 
 card makers, tobacco manufacturers and dealers, vinegar 
 makers, which pi'oduced in 1881 upwai'ds of £2,000,000. 
 These must of course be recouped out of the profits of 
 their respective businesses, and therefore add to the 
 price of the articles sold. 
 
 In the third place there are stamp duties on commer- 
 cial transactions, which pro tanto reduce the profits and 
 increase price. These are levied — 
 
 On Bills and Notes, producing in 1881 . . £756,000 
 
 On Receipts and Cheques 889,000 
 
 On Marine Insurances , . 141,000 
 
 In the fourth place there is the railway passenger 
 duty, which in 1882 amounted to £798,333. It is the 
 anomalous remnant of the taxes on various means of 
 
XVIII CUSTOMS DUTIES 195 
 
 locomotion wliich foi'iiierly existed, and it is open to 
 objection on account of the exemption from it of what are 
 called cheap parliamentaiy trains, and the difficulties 
 which arise from that exemption. But it is in most ca.ses 
 a tax not so much on locomotion, or on passengers, as 
 on railway dividends. 
 
 It is to be observed with respect to these taxes that, 
 putting aside alcoholic liquors, the articles of food now 
 taxed are tea, coffee, and cocoa ; and that tobacco and 
 alcoholic liquors, both of which may be considered 
 luxuries, pi'oduced together in 1881 £37,000,000, or not 
 far from half of the £85,882,000 which constituted our 
 whole national income. 
 
 None of the above taxes are levied on what are 
 usually known as the raw materials of our ordinary 
 manufacture ; nor are any of them, unless it be the 
 excise on alcoholic liquors, taxes which necessitate the 
 A'exatious interference of the exciseman in the processes 
 of manufacture. Nor are any of these taxes of such a 
 nature as to protect English manufacturers against 
 foreign competition. When a tax is levied on an 
 imported commodity, such as alcoholic liquors, a similar 
 tax is levied on the same articles produced in the 
 country. Nor are any of the taxes on imported articles 
 intentionally differential as between one foreign country 
 and another. In the case of wine, the present alcoholic 
 standard is thought to give advantages to the light 
 wines of France over the stronger wines of Spain, 
 Portugal, and the colonies. But this differential effect 
 was not intended, and will probably soon be remedied. 
 
 Finally, the whole tariff is one of great simplicit}', 
 when compared with most foreign and colonial tariffs. 
 
 As regards local taxation, there is little in this 
 
 2 
 
100 THE STATE IN ITS RELATION TO TRADE cii. xviii 
 
 country wliich can be said to be a direct burden on 
 trade. 
 
 By far tlie greater part of the expense of local 
 government is paid for by direct rates upon property.^ 
 The whole sum raised by local taxation in 1880 was 
 £31,043,100, and of this £25,926,943 was raised by 
 rates. Of the remainder, £437,946 consisted of the 
 duties on coal, wine, and corn, levied by the City of 
 London, which are applied for metropolitan improve- 
 ments ; and the remainder, £4,678,211, consisted of 
 rents of j^roperty belonging to local authorities and 
 tolls. Of these tolls all, or almost all, are special 
 payments for special services rendered to the special 
 trades which pay them, such as tolls for the use of 
 markets, bridges, ferries, and roads ; and light, 
 pilotage, and harbour dues. If the amount of the 
 receipts for special services rendered and for x'ents, 
 which are not given separately in the return, were 
 deducted from the sum of £4,678,211, the sum re- 
 maining would be very small, and the whole amount 
 received in the shape of taxes on articles bought and 
 sold must come out of this sum. In fact, including the 
 £437,946 of London dues, the taxes levied on trade 
 by local authorities for general purposes, do not 
 probably amount to half a million. 
 
 Many persons would be glad to see the taxes on tea, 
 coffee, and cocoa, abolished. But we may fairly say 
 that our taxation, both general and local, has been so 
 arranged as to throw no undue burdens on trade. 
 
 ^ See the return of local taxation contained in Parliamentary 
 Paper 112, 1882. 
 
CHAPTER XIX 
 
 THE STATE AND TRADE IN WAR 
 
 We have hitherto been considering the relations of 
 the State to trade in times of peace ; but the State has 
 also special relations to trade in time of war, or appre- 
 hended war. In considering these we must bear in 
 mind what has been said in an earlier chapter concerning 
 the trading position of England amongst other nations. 
 We have incomparably the largest stake in tlie com- 
 merce of the world ; we have the largest quantity of 
 foi-eign investments, most of wliich are made by means 
 of the export of goods, and the profit on which returns 
 to us by the import of goods ; we have the largest 
 quantity of property liable to capture and destruction 
 at sea ; we have a merchant navy, one of our most 
 important industries, which is more than equal to the 
 merchant navies of all other nations. It is therefore 
 our interest, far more than that of any other nation, 
 to try to make the laws of war such that they shall 
 do as little harm as possible to peaceful trade. 
 
 We have, it is true, a war navy moi'e powei'ful than 
 that of any other nation, and greater means than any 
 other nation of making it still more powerful ; and I 
 fully believe that our superiority in this respect is as 
 
198 THE STATE IN ITS RELATION TO TRADE ch. 
 
 great as it ever was. But great as our power 
 at sea unquestional>ly is, its ability to injure an 
 enemy by destroying liis trade is limited ; and its 
 ability to defend our own merchant shipping at sea 
 is limited also. Add to this that our investments 
 are so widespread and all-pervading that we should 
 never know whether in dei^troying an enemy's pro- 
 perty we were not destroying our own. It was said 
 that the timber which we destroyed in Russia during 
 the Crimean war belonged to English merchants. Had 
 we gone to war with the United States about the 
 Trent or the Alabama, and made prize of ships sailing 
 from the East to New York under the Stars and 
 Stripes, we should have been destroying the security 
 for advances made by London merchants. Modern 
 trade is so universal, so complicated, and so connected, 
 that the loss of one trading nation is the loss of all ; and 
 as we are the greatest traders, and the greatest capital- 
 ists, we should generally and i^robably suffer most by 
 any great injury to trade. It is important not to lose 
 sight of these facts, because there are those amongst 
 us who i-egret any restriction of the belligerent rights 
 which were formerly exercised by ourselves and others, 
 and who think that a full restoration and stringent 
 exercise of those rights would help to maintain our 
 trading superiority. Bearing then these general obser- 
 vations in mind, let us consider the various cases in 
 which war affects trade. 
 
 Restrictions on Exports and Imports. — First then there 
 is the case where we apprehend danger either at home 
 or abroad, with or without actual war. To meet such 
 cases the Government has power uiidtn- the Act 39 and 
 10 Vict. ch. 36, §§ 43 it 138, to furl)id the ini})()rlation 
 
XIX THE STATE IN TIME OF WAR 199 
 
 of arms, ammunition, gunpowder, and other goods, and 
 also to prohibit the exportation of arms, ammunition, 
 stores, and food. 
 
 Foreign Enlistment Act. — Secondly, there is the case 
 when we are at peace and other nations are at war. 
 In this case the State does not interfere with 
 ordinary trade. "With the exception mentioned below. 
 Englishmen are free to trade as they please with either 
 belligerent, subject to the chance of capture by the 
 other belligerent if they break blockade or carry contra- 
 band of war. But the English Foreign Enlistment Act 
 (1870) forbids them to build, or equip, or despatch a 
 ship which is to be used in the naval service of either of 
 the belligerents ; or to add to the equipment of any ship 
 of war of either of the belligerents (meaning by equip- 
 ment, the furnishing of arms, ammunition, provisions, or 
 stores of any kind). These prohibitions are enforced 
 by penalties, by stringent powers of seizure, and by 
 forfeiture. This act, which amends and strengthens 
 the act previously in force, was passed after the 
 American civil war, and in consequence of the difficulties 
 which had arisen in the case of the Alabama and other 
 similar ships. Coupled with other enactments it enables 
 our Government to carry into effect the substance of 
 the celebrated three rules adopted in the Washington 
 Treaty, which in general terms bind each nation to use 
 due diligence to prevent the fitting out, arming, or 
 equipping, or departure, of any vessel which is intended 
 or adapted to carry on war against a power with which 
 it is at peace, and not to allow either belligerent to 
 make use of its ports as the base of naval operations 
 against the other. These rules, as is well known, were 
 adopted by England and the United States, and were to 
 
200 TIIK STATE IN ITS RELATION TO TRADE cii. 
 
 have been proposed to other nations as part of the 
 general maritime law of the world. It is deeply to be 
 regretted that preposterous claims for compensation on 
 the one side, legal mismanagement on the other, and 
 general bad temper between the nations, prevented the 
 Alabama Treaty — in itself one of the noblest and most 
 successful attempts ever yet made to put an end to 
 national quarrels by conciliatory means — from being 
 crowned by a settlement of a disputed point of inter- 
 national law, which would have been an immense gain 
 to the trade of the world generally, and especially to 
 that of this country. It is obvious from what has 
 iDeen said before, that no nation has so great an 
 intei^est as we, with our enormous property afloat, 
 have in circumscribing the operations of hostile cruisers. 
 We have numerous ports ourselves all round the globe 
 at which our own cruisers can refit and etjuip. Otlier 
 nations, with whom we might go to war, would not be 
 so well off, and would depend for their powers of 
 carrying on operations against our trades on the 
 facilities given to them for obtaining coal and other 
 stores in neutral ports. To limit such facilities is of 
 the utmost imjDortance to us, and any loss we might 
 suffer by being prevented, when neutrals ourselves, from 
 supplying stores to belligerents, Avould be a trifle in 
 comparison. It is much to be desired that the three 
 rules, or some rules embodying the same principles in 
 better and clearer language, should be revived on some 
 fitting occasion. 
 
 Blockade^ Contraband of War, and Maritime Capture. — 
 Thirdly, there is the case where we are at war ourselves. 
 When this is the case British subjects are not allowed 
 to trade with the enemy, or with the enemy's subjects. 
 
XIX BLOCKADE 201 
 
 But when we tare at war, it is not so much the action of 
 our own State which affects our trade, as the laws and 
 principles Avhich the governments of all civilised nations 
 have recognised as regulating the mode in which one 
 enemy may seek to destroy the commerce of the other. 
 The three principal weapons which international law 
 recognises as proper to be employed by a belligerent 
 for this purpose, are blockade, seizure of contraband of 
 war, and maritime capture. The two former are 
 employed against the trade of the enemy carried on 
 under a neutral flag. Under the law of maritime 
 capture an enemy seizes and makes prize of the ship 
 which carries the flag of the other belligerent, however 
 and wherever employed, so long as she is not within 
 the territorial jurisdiction of some neutral country. 
 
 By the law of maritime blockade, either belligerent 
 may declare certain ports or part of the coasts of the 
 other belligerent to be in a state of blockade, and 
 if this declaration is supported by a sufficient blockad- 
 ing force, may capture any neutral ship which attempts 
 to carry on trade with the blockaded ports. As a 
 weapon of offence against English trade, blockade is 
 not likely to be efficient so long as we retain our naval 
 superiority and are able to drive away a blockading 
 force. As a weapon of offence in our own hands it is 
 likely to be of less value than it formerly was, because 
 the facility of transport by railway throughout the 
 whole of the continents of Europe and North America 
 enables goods imported and exported through neutral 
 or distant ports, v>'hich are unaffected by the blockade, 
 to be carried to any part of the continents, and thus 
 makes the blockade of a limited portion of the coast 
 ineffectual. 
 
202 THE STATE IN ITS RELATION TO TRADE cii. 
 
 Under the laws relating to contraband of war, an enemy 
 may seize arms and munitions of war and stores which 
 are to be used for warlike purposes when found under a 
 neutral flag and intended for the service of the other 
 belligerent, and may make prize of the ship. But this 
 weapon, whether in our own hands or in that of our 
 enemy, is likely to be a less eflficient weapon than it 
 formerly was, because coal and iron will be the most 
 important of the articles which may be treated as 
 contraband of war ; and these being, as the lawyers 
 say ancipitis usHs, and needed by all nations for 
 purposes of peace as well as of war, it will be very 
 diihcult, when they are found under a neutral flag, to 
 fix the carriers of them with a warlike intention or 
 destination. 
 
 The most important however, of these laws, is 
 that of maritime capture. Under this law a bel- 
 ligerent has at sea a recognised right — which he 
 does not possess on land — of taking and appropriating 
 the private property of his eneny's subjects. This 
 right lias been much altered and limited by the Treaty 
 of Paris. That treaty effected two great changes. 
 It provided that the flag should cover the goods — that 
 is, that an enemy's cargo carried in a neutral ship 
 shall not be liable to capture. This doctrine has since 
 been always acted on, and though the Americans were 
 not parties to the treaty, it will no doubt be recognised 
 by all nations as the maritime law of the civilised 
 world. The second change was that privateers — that 
 is, private persons cruising for their own jirofit, under 
 licences from their own government — should no longer 
 be allowed to make captures. By this provision the 
 United States refused tu be Ijound, unless on the 
 
XIX MARITIME CAPTURE 203 
 
 condition, which was refused by us, that private 
 property at sea should be exempt from capture alto- 
 gether. 
 
 The result of the law of maritime capture, as it now 
 stands, upon ourselves, is as follows : 
 
 Regarding maritime capture as a weapon of offence in 
 our own hands, we shall be able to injure the merchant 
 navy of our enemy, but not to destroy his trade, which 
 will be carried on safely under a neutral flag. Regarded 
 as a weapon of offence in our enemy's hands it will not 
 enable him to destroy our trade, which may, like his own, 
 be carried on under a neutral flag, but it will enable him 
 to capture our merchant ships, which are not only more 
 numerous and valuable than those of any other nation, 
 but more numerous and valuable than those of all 
 other nations put together. We shall not be able to 
 protect them, as formerly, by convoy, for speed is of the 
 essence of modern trade, and traffic will speedily desert 
 ships which have to wait for convoy. Nor would convoy 
 be effectual against fast steam cruisers. Our fastest 
 ocean steamers will probably save themselves from 
 capture by their own speed, but the bulk of our trade 
 is carried on in seven or eight knot steamers, which 
 will fall an easy prey to fast armed vessels. The 
 result will be that premiums of insurance in English 
 ships will rise and become ruinous, and our ships will be 
 transferred to some foreign neutral flag, perhaps never 
 to return. We shall then under this law of maritime 
 capture, be able to injure or destroy our enemy's 
 merchant navy, and he will in most cases be able to 
 cripple ours ; but in this, as we have far more to lose 
 than he has, we shall be the greatest sufferers. 
 
 It is impossible to discuss this subject here as its 
 
204 THE STATE IN ITS RELATION TO TRADE cii. 
 
 importance deserves. But in a treatise on the relations ' 
 of the State to trade, it would be wrong to omit all 
 notice of a danger impending over an important branch 
 of our trade, which it may be in the power of the State 
 by successful diplomacy to remove. 
 
 It apppears to me that it is deeply to our interest to 
 do what the Americans and others have heretofore in 
 vain asked us to do, viz., to extend still further than 
 has yet been done the principle of exempting private 
 property at sea from being seized or desti'oyed by 
 an enemy. 
 
 Trade and Conquest. — There is another aspect of the 
 relations of the State to trade in connection with its 
 foreign relations, which suggests still more serious 
 reflections. English trade is found in every quarter of 
 the globe, among savage and half-civilised, as well as 
 among civilised nations. It is found in the shape of 
 cargoes exchanged under the protection of the English 
 flag, of investments by Englishmen in the industrial 
 enterprises of the foreign countries, and of money lent 
 to foreign governments, the profits and interest of 
 which come back to us in the shape of goods carried 
 in British ships. These ships and their cargoes, these 
 investments of British capital, the State is called upon 
 to protect. Now all these operations are praiseworthy, 
 useful, and desirable in themselves, and if fairly and 
 properly conducted may carry civilisation into the waste 
 parts of the earth. It is the privilege of honourable 
 trade that, like mercy, it is twice blessed ; it blesseth 
 him that gives and him that takes ; each of its dealings 
 is of necessity a benefit to both parties. But traders 
 and speculators are not always the most scrupulous of 
 mankind. Their dealings with savage and half-civilised 
 
XIX TRADE AND CONQUEST 205 
 
 nations too often betray sharp practice, sometimes 
 violent and wrong. The persons wlio carry on our 
 trade on the outskirts of civilisation are not distinguished 
 by a special appreciation of the rights of others, nor are 
 the speculators who are attracted by the enormous 
 profits to be made by precarious investments in half- 
 civilised countries, people in whose hands we should 
 desire to place the fortunes or reputation of our country. 
 When a difficulty arises between ourselves and one of 
 the weaker nations, these are the persons whose voice is 
 most loudly raised for acts of violence, of aggression, or 
 of revenge. Our merchant navy, we are told, began its 
 career with piracy and slave-dealing, and in some of the 
 practices which we are now trying to repress amongst 
 the isles of the Pacific is still to be found a taint 
 of its original vice. Our dealings in the far East, 
 and elsewhere, have not always been such as 
 would do credit to an honest merchant. The conse- 
 quences have too often been repudiation, ill-will, and 
 violent revenge. The State is then called in to pro- 
 tect its trade with the cannon and the bayonet, and we 
 end with conquering where we began with bviying and 
 selling. It would be interesting to examine how many 
 of our wars and conquests have had their origin in what 
 ought to have been peaceful trade. For good or for 
 evil we owe India to a trading company. Our wars in 
 China arose out of our trade, and we should not now be 
 in Egypt, but for our investments in that country, and 
 our interests as traders in the Canal. Every vantage 
 point in the map of the world becomes a port of call 
 for English ships, and is garrisoned by an English 
 force ; the bounds of empire are extended, and subject 
 nations are annexed. To those who reflect with IVfr. 
 
206 THE STATE IN ITS RELATION TO TRADE ni. xix 
 
 Gladstone ^ that our power, our prosperity, our empire, 
 depend upon the character, vigour, and capacity of tlie 
 people who inhabit these islands, and that this people 
 is only thii'ty-five millions in number, it may well bo 
 doubted whether, in undertaking to manage such a 
 large proportion of the world, Ave are not taking u^Don 
 ourselves more than we are able to perform, and whether 
 the demands which our trade thus indirectly makes 
 upon our population do not constitute a serious drawback 
 to the wealth and power which it brings us. It is a 
 reflection which ought at any rate to inspire hesitation, 
 caution, and moderation, when we are called upon as a 
 nation to undertake fresh risks and fresh responsibilities 
 on behalf of our ubiquitous commerce. 
 
 ^ See his article on " Aggression in Egypt," in the Nineteenth 
 Century of June, 1877. 
 
CHAPTER XX 
 
 COXCLUDIXG SUMMARY 
 
 We have thus seen that the State maintains order, 
 without which trade would be impossible ; that it 
 enforces trading contracts, and at the same time pro- 
 vides that their obligation shall not continue too long 
 or become oppressive ; that it determines the measures 
 of quantity and value in which contracts are made, and 
 supplies, though not at its own cost, the medium of ex- 
 change ; that it repudiates monopoly, unless when neces- 
 sary to reward invention ; that it generally leaves buyers 
 and sellers to fix their own prices ; that where monopoly 
 is inevitable it regulates price and conditions, and some- 
 times undertakes the supply itself ; that it repudiates 
 any attempt, by means of protective duties, or other- 
 wise, to prevent buyers from buying what they want to 
 buy, or to compel them to buy what they do not want 
 to buy ; that it does not hesitate to interfere with trade 
 when it appears to be necessary to do so in order to 
 protect life and health ; that it levies a part of the 
 general revenue of the nation upon the exchange of 
 commodities, in return for which it gives to trade, in 
 peace, the benefits of security from violence, of law, and 
 of various organised modes of action without whicli it 
 
208 THE STATE IN ITS RELATION TO TRADE en. xx 
 
 could not exist ; tliat in time of war between other 
 nations, it enforces certain restrictions on trade for 
 the purpose of maintaining peace ; and that when it 
 is at war itself, it gives to trade all the protection 
 it can, and in so doing often takes upon itself serious 
 liabilities. 
 
 Under this system, the chief feature of which is as 
 much individual freedom as is consistent with the 
 welfare of an organised society, and the performance of 
 self-imposed obligations, British trade has grown to be 
 such as the world has never seen before. The State has 
 given protection, and has established forms and modes 
 of action. But its chief praise in relation to trade has 
 been that it has left as much scope as possible to the 
 free energy and self-interest of its people. 
 
 THE END 
 
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