§ Die Lunœ, 16° Junii, 1856.
§ Against the Second Reading of the Joint-Stock Companies Bill.
§ DISSENTIENT.— "1. Because the measure is wholly unnecessary; inasmuch as every concern has the means of limiting its liability by trading upon its own capital, and not upon the borrowed capital of others. Liability is not necessarily incident to trading or to the application of capital to the pursuits of industry; it is the result of taking credit or trading upon borrowed capital. Limited liability, therefore, is a measure of protection, not to the capitalist, great or small, but to the speculator, who wishes to trade for his own profit but with the capital, and at the risk of others.
§ "2. Because the principle of limited liability is antagonistic to, and will probably prove seriously destructive of, the sober and substantial virtues of the mercantile character. By weakening in the mind of the trader the sense of full responsibility for the consequences of all his actions, and limiting the obligation which now rests upon him to return in full all that he has borrowed from others, the general tone of commercial morality must be deteriorated. By limiting the unfortunate consequences of failure, while no corresponding limitation is placed upon the gains which may attend success, the due equipoise between the restraints and the stimulants to enterprise and speculation, upon which depend the solidity and safety of the commercial system, must be disturbed. By enabling parties to put a fixed limit to the amount of possible loss the chief incentive to caution or vigilance in the conduct of business will be taken away or seriously weakened, while by leaving the hope of gain unrestricted and indefinite, a gambling principle will be introduced into commercial transactions, and the risks of trade will assimilate themselves to the chances of the lottery-wheel rather than to what they now are, the legitimate results of hopeful industry and cautious enterprise.
§ "3. Because the measure in its present form, unaccompanied by safeguards or any attempt to obviate the clear and acknowledged danger of abuses to which the principle of limited liability must be exposed, is not only in opposition to the 1491 Report of the Royal Commission appointed to inquire into the subject, but is contradictory to the practice and experience of every country in the world which has admitted the principle of limited liability into its commercial code.
§ "In every other country the privilege of limited liability is surrounded by restrictions which are intended to guard against the danger—first, of excessive and reckless enterprise, naturally generated by the sense of strict limitation of risk; and, second, of fraudulent abstraction under the form of interest or profits, of that specific and fixed amount of capital which is alone appropriated as the security of the honest creditor.
§ "These restrictions indicate the universal conviction of all other countries that against these sources of abuse it is necessary that some proper safeguard be provided. If it be deemed impossible to render such safeguards efficient and satisfactory, the conclusion necessarily arises that a measure ought not to be persisted in which does not admit of effectual protection against injustice to the honest creditor and injury to the public interests.
§ "4. Because the effect of the Bill will be to give legal protection, and, therefore, to hold out moral encouragement, to dishonest practices in trade.
§ "Profits in trade consist of interest upon capital, remuneration for labour and skill, and premium of insurance on risk. In proportion as the risk in any business is great profits are usually high; but of these high profits a large share is by every honest trader set aside as the premium reserved against high risks. An unfortunate tradesman coming before the Bankruptcy Court would not be very leniently dealt with should it appear that, carrying on a very riskful business, he had year by year spent all the great apparent profits, making no reserve out of them to meet the high risks he was incurring. Now, this is the very practice which this Bill directly sanctions, and therefore encourages.
§ "The object of the measure is to enable concerns to limit their liability to a certain fixed sum, which has no reference to the varying magnitude of the risks which they incur, or to the high profits which, through those risks, they are appropriating to themselves, but not reserving for the honest protection of their creditors.
§ "They are, in fact, appropriating and misapplying the premium of insurance, which, under the form of high profits, they year by year receive; and in this immoral course they will have the authority and sanction of the Bill.
§ "5. Because the tendency of the measure must be to encourage and promote the transference of capital from trading concerns now constituted, and conducted with the caution and prudence which the sense of unlimited liability necessarily generates, to joint-stock companies, trading with small paid-up capitals, and embarking, under the protection of limited liability, upon risks which no person would otherwise venture to encounter. When loss occurs a heavy portion of it will be made to fall upon the unfortunate creditor, who deserves our sympathy, whilst the adventurers who ought to be the victims of their own reckless speculations will remain comparatively safe under the ægis of limited liability. Meanwhile the sober calculations and legitimate transactions of real trade will give way to a general spirit of speculation, in hazardous enterprises, 1492 and jobbing in shares—a state of things of which the history of 1824 and 1825 affords a practical illustration, and, at the same time, holds out a warning example.
§ "6. Because many very important advantages arise from the high moral character and commercial credit founded upon the full and punctual discharge of all its obligations which this country at present enjoys throughout the world. If the effect of the measure shall be, as is predicted by its supporters, to restrict rather than to increase credit, by filling the community with a mass of concerns notoriously undeserving of public confidence, the consequence must be serious injury to our commercial character abroad—a diminution of the confidence which other countries repose in the engagements of our merchants and traders—an interruption to the ease and freedom with which all our trading intercourse with the world is at present conducted—and, in the end, absolute pecuniary loss to the country.
§ "7. Because the measure is singularly inappropriate to the present state of this country as regards capital and enterprise.
§ "There is abundance of capital in this country. We are the lenders of our surplus capital to every nation of the world. Any sudden demand, any new opening for speculation is at once supplied with inexhaustible funds; whilst we are subject to the frequent recurrence of periods of undue and dangerous inflation of credit and speculation. When these periods occur, the tendency of the measure must be to extend and intensify these evils, by giving facility for the widespread introduction of Joint-stock Companies, reckless in their procedure because protected by limited liability, and filling the community with the instruments of gambling in the form of shares upon which little or nothing has been paid up. The real want of the country is competent and duly qualified men (in whom confidence is duly blended with caution, and the spirit of mercantile enterprise is regulated by experience and the sense of responsibility) to wield successfully the vast resources of capital and credit which the country is prepared to place at their command.
§ "The evil to the correction of which the Bill is apparently directed—namely, insufficient supply of capital to meet the demands of industry and enterprise—does not, in fact, exist; whilst the real difficulty is one which legislation cannot effectually remedy.
§ "8. Because the period chosen for the introduction of this measure is peculiarly unfavourable to the safety of the experiment. After a long-continued heavy drain of the precious metals from this country, the reflux has apparently commenced; a great accumulation of bullion may be reasonably anticipated. Under such circumstances, credit and a blind spirit of speculation are always developed to a dangerous extent. On the present occasion this danger will be rendered more formidable by the effect, the character and extent of which is yet to be ascertained, of the recent extraordinary discoveries of gold. The time is therefore approaching, according to all probability, at which the prudence and firmness of the community will, through the natural course of events, be subjected to a severe trial.
§ "At such a moment it is eminently inexpedient and dangerous to introduce a change in the law seriously affecting the mutual relation of the debtor and creditor interest, and which must, in the first 1493 instance at least, exercise a powerful influence on credit and speculation. Important changes of the laws which affect our monetary or commercial system, however sound may be the principles on which they rest, are almost invariably followed by rapid and excessive development, leading to temporary, but serious embarrassment.
§ "The crisis of 1825 was preceded by, and was intimately connected with, the rapid development of the warehousing system which resulted from the Acts passed in 1822.
§ "The crisis of 1837–9 was closely connected with the sudden and excessive expansion of the Joint-stock banking system which occurred in the years immediately preceding.
§ "The crisis of 1847 followed closely upon the extensive reduction of import duties introduced by Sir R. Peel and the sudden outburst of the railway system.
§ "Experience, therefore, compels us to anticipate a similar crisis as the necessary result of the first development of that great change in our monetary and commercial system which is involved in this abrupt and unqualified introduction of the principle of limited liability.
§ "If this crisis occurs simultaneously with the effect of a strong influx of the precious metals on the return of peace, and of the recent extraordinary addition to the total amount of the precious metals through the gold discoveries, the firmness and prudence of the country may be subjected to a trial too powerful to be withstood, and an artificial expansion of credit may ensue, causing monetary embarrassment and great mercantile disasters.
§ "OVERRSTONE,
§ "MONTEAGLE OF BRANDON."
§ House adjourned till To-morrow.