6 MAY 1865, Page 8


NOTHING is more surprising than the power which resides in a phrase which is, in the language of that acute lawyer Mr. Bovill, " intelligible,"—that is, which lays down a rule easily applicable to a large class of facts, and therefore enables people to dispose of a great number of questions by rule of thumb. There is perhaps no single subject of human thought in which the minds of all of us are not under the influence of such phrases. They commence their career when the subject is imperfectly understood, are perpetuated by in- dolence, and come at last to be regarded as a sort of religion. The bold man who first asks why is regarded as a sort of monster of audacity, and even the forlorn hope who follow his lead usually apologize for their temerity by qualifying the principle they assert with restrictions which show that the principle itself is only half apprehended. Examples of this will readily occur to every one, but there is none more striking than is afforded by the law of partnership. At a time when its principles were not understood even by lawyers, and when the science of political economy was still in its infancy, there was a theory that the fund from which the debts of a trader were to be defrayed was his profits. This theory was reduced to words by Chief Justice Eyre seventy years ago, and it remained till very lately sacred as the laws of the Medea and Persians in the eyes not only of lawyers, but of commercial men. It has been right in all men's eyesithat he who shares in the profits deb.,. ess should be regarded as a partner, and liable for the a ebts of the firm to the last shilling he owns. Then a few mere theorists began to question the doctrine. They pointed out that it is simply untrue that a trader's liabilities are defrayed out of profits. If A sells goods worth 100/. to B, who re-sells them for 120/., it is obvious that A does not and cannot expect that his 100/. will be paid out of the 201. profits. The prate are the fund from which B defrays not his trade debts, but the charges of his business and his own personal expenditure. Nor is there the least justice in the legal rule. When A sells goods to B he trusts B. He does not trust C, who has lent money to B, for he never heard of him and did not know that he had lent money to B. Why, then, should A. be allowed to make C pay him ? And to make C pay not only out of the money he lent, but out of any other property he may possess, even if it reduces him to beggary ? The fact is that the rule depends altogether on false political economy. Its injustice, when that is admitted, is so great as to need only to be stated. There can be no reason why a trader's creditors should have a right to be indemnified from the property of a man whom they did not trust, and who is himself a creditor, simply because the interest he stipulated for was not a certain, but an uncertain sum—because it -was to be paid in the way most convenient to the trader, more when his profits were more, and less when they were less. At last, however, the theorists began to prevail, even with practical men. Mr. Baron Bramwell, a man who will think for himself, spoke out, and when a judge has authorized innovation the Bar begins to think too. The mercantile world formed joint-stock companies, and after a very long interval some of them rubbed their eyes and recognized that directors are carrying on a business with borrowed capital, and do not even become liable themselves to the public for more than the amount of their shares. The joint-stock company idea, however, still haunted everybody, and it was thought necessary that every trader who borrowed money and gave the lender a share of his profits must register the tran- saction, and always put "limited" after his name, or something dreadful would happen. Mr. Seholefield's Bill two years ago was founded on this principle, that the law can take better care of people's interests than they can them- selves. At last all these over-careful provisions have dis- appeared, and the Government Bill, which was read a second time on Monday, simply enacts that if a man lend money to a trader he shall not be a partner merely because he receives a share of the profits in lieu of interest ; that if a clerk or servant receives a share of the profits instead of salary he is not thereby made a partner, nor the widow or child of a deceased partner because they receive by way of annuity a share of the profits instead of a fixed sum.

Of course there are people who have not got as far as this yet. Mr. Feel has "the greatest apprehension of the con- sequences," Mr. Aspinall Turner clings to " registration," Mr. Hubbard is in terror for "the integrity of our great capitalists," who he seems to think will certainly combine with a man of straw to cheat the public if they can. The capitalist will not engage in business henceforth, but lend his money to a dummy who will pay him nine-tenths of the profits, and as soon as the business goes wrong the capitalist will with- draw his money and leave the other creditors to make a bankrupt of the dummy. This is a pretty picture of the integrity of great capitalists by one of themselves. But, as Mr. Goschen shrewdly observed, the argument assumes that your capitalist can trust his dummy to defraud the public, but not to defraud himself. But one may also ask in what way will this species of fraud be facilitated by the Bill before the House. What does it matter whether the money is lent in consideration of a share of the profits or of an exorbitant interest for this purpose ? The lender equally absorbs the whole profits without sharing the risk. There are plenty of trades carried on now with borrowed capital. If the trader could offer a share of profits, a varying instead of a fixed rate of interest, be could probably borrow on rather better terms, and so there would be eventually rather more men trading partly on borrowed capital. In what way does this promote fraud? Carefully considered, all these safeguards for which Baring, Hubbard, and Co. are so anxious are, we are convinced, nothing but relics of the old notion, that the creditor looks to profits for repayment, which people have repeated so long and re- ceived on the authority of such immense big-wigs that they cannot get it out of their heads. What would be of advantage to the public would be to know when a trader borrows money, and on what terms he borrows it. But registering one par- ticular kind of loan does not tell you that. All it does is to prohibit that sort of loan. There is no charm in a fixed rate of interest, to make it safer to trust a man who borrows capital on those terms than one who borrows at a fluctuating rate. The public has an interest in learning the fact of the loan and the scale, of remuneration, but not the mode of remuneration. So, again, the speakers against the Bill seemed to be all

under the idea that it would in some way facilitate the quiet withdrawal of capital. It is quite impossible to see how. The capital was withdrawn from Attwood, Spooner, and Co.'s bank quietly enough. Again; Mr. Baring thought that the Bill would in some mysterious way diminish prudence. "A man in trade" he said, "hesitates now before he rushes into speculation, because he knows that he will risk the whole of his capital and his future pros- pects, and it was this knowledge that had made the British merchant prudent and calculating." We wonder whether the same principle of law exists in China, or whether the absence of it is the cause of that rash spirit of enter- prise which characterizes the trade of France. We should rather attribute the success of English traders to the innatus amor Wadi, which they share with Chinamen and bees.

But however this may be, Mr. Baring may be assured that this Bill will not revolutionize British commerce. "A man

in trade" will still risk the whole of his capital just as he does now, and if a lender interferes in the management of the- business he will cease to be a lender and become a partner, and risk the whole of his capital also. A man who interferes in the conduct of a business, or in any other way holds himself out to the world as a partner, will be liable to the public just as he is now. All this Bill says is, that if a man lends money to a trader, and no more, he shall not be deemed a partner because he takes his interest in the form of a share of the profits. Indeed the proviso in the Bill to which the member for Brighton objected seems to be only another remnant of the old partnership theory. A lender who takes a share of the profits is, in case of bankruptcy, to be post- poned to all other creditors ; but if he is bond fide a lender,, and has had no right to interfere, and has not interfered, in the conduct of the business, why should he be put on a worse footing than a lender who takes a fixed interest? So long as -• this rule is maintained, we agree with Mr. Moor that the Bill will not be of much practical importance. Of the same kind' is the proposal to make the lender responsible to the extent of his loan for the liabilities of the borrower for a certain period after he has withdrawn his money. The proposal is probably a fair one, but it ought in justice to extend to all loans, however the interest is paid. If it is to apply only to lenders who share the profit it is but another form of the old fallacy—that there- is some distinction in kind between a loan of money in return for a share of profits and a loan in return for a fixed annual payment. The real question in every case is, whom has the creditor trusted? If a trader is to be allowed to borrow money secretly for the purposes of his trade (and who would • dispute it ?) he and the lender should be left free to make the bargain which is most for their interests. With the terms of that bargain the public has no concern.

The second clause of the Bill, which gives employers power to pay their servants by a share of profits without making them partners, is perhaps of more public im- portance than the first. Wherever that system is intro- duced a strike will become impossible, and the master will, moreover, find it the surest guarantee for the effectual co-opera- tion of his workmen. Of course masters will not, and indeed could not, safely part with the control of their capital, or en- title their dependents to interfere in the management of the• trade. And it is well known that the great firm of Crossley and Co. have recently made their house a company with limited. liability, mainly to avoid the difficulties which the laws puts in the way of traders who wish to give their servants an interest in their business. To what extent employers will follow this example it would be premature to conjecture, but, at least the law should leave them free to do as they like. It- is to the voluntary adoption of the principle of co-operation that those must look who desire to see better relations between- labour and capital, and that principle also affords the most. practical means of gradually raising the condition of the poorer classes. We believe that the result would be as beneficial to the employer as to the employed.