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THE SAVINGS OF THE MIDDLE AND WORKING CLASSES 1850 - John Stuart Mill, The Collected Works of John Stuart Mill, Volume V - Essays on Economics and Society Part II 
The Collected Works of John Stuart Mill, Volume V - Essays on Economics and Society Part II, ed. John M. Robson, introduction by Lord Robbins (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1967).
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THE SAVINGS OF THE MIDDLE AND WORKING CLASSES
Parliamentary Papers, 1850, XIX, 253-66. Not republished. Original heading: “John Stuart Mill, Esq., called in; and Examined.” Running heads: “Minutes of Evidence taken before Select Committee/On Savings of Middle and Working Classes.” The evidence was taken on 6 June, 1850, with R. A. Slaney in the Chair, and the following members of the Committee present: John Ellis, William Ewart (whose name is omitted from the list in Parliamentary Papers), Thomas Greene, Frederick Peel, John Abel Smith, and Lord James Stuart. Identified in JSM’s bibliography as “ ‘Evidence before the Select Committee of the House of Commons on Investments for the Savings of the Middle and Working Classes’ printed with their Report, forming No. 508 of the papers of the Session of 1850” (MacMinn, 75). No copy in Somerville College.
JSM’s examination includes questions 835 to 961 of the evidence before the Committee.
The Savings of the Middle and Working Classes
r. a. slaney:You are the Author of a work on Political Economy?[*] I am.
In that work you have directed your attention to the improvement of the condition of all classes? The working classes more particularly.
Have you considered any of the obstacles that you think may arise from the present laws of partnership?[†] The laws of partnership oppose obstacles of various kinds to the improvement of the working classes; but perhaps the most important is the obstacle which they throw in the way of combinations among the workmen engaged in any particular branch of industry, for the purpose of carrying on that industry co-operatively, either with their own capital or with capital which they borrow.
With respect, first of all, to capital to be invested in industrial enterprises, every person, by the present law of partnership, who advances any portion of the capital, is liable to the whole amount of his fortune, is he not? Except in the case of chartered companies; I believe there is no other exception.
Do you think that such liability prevents many persons of prudence and caution, who would otherwise be willing to advance capital to a certain limited amount, from making such advances? I have no means of answering that question from personal experience, but from the reason of the thing, I think it must oppose a very great obstacle.
Another obstacle is the difficulty there is in parties combining together for industrial purposes, to prevent fraud among themselves, is it not? That I have understood is the most serious difficulty at present, a still more serious one than that arising from unlimited liability. With respect to the sort of combinations that I speak of, I am not sure that limited liability, so far as regards the working classes themselves, would make much difference; if they invest anything we may be pretty sure that they invest nearly all they have, and if they lose that they lose everything; but I am quite aware from what I have heard stated by members of the working classes, and by persons active and anxious for the improvement of their condition, that they feel very great difficulty in establishing a proper control over one another, and over the managers; and they ascribe to that the failure of such enterprises hitherto, in the cases in which they have failed.
At present, if any one of those humbler persons who join together in partnership to carry on an industrial enterprise acts fraudulently, there is no summary mode of punishing him, is there? I presume there is hardly any certain mode of punishing a partner for almost any frauds, for he is considered to be making use of his own property. The recent fraud on the Globe Insurance Company affords a striking example of that.
Another thing that these industrious persons desire, is to be enabled to enforce the rules made among themselves, before a magistrate, in a summary manner, without going to the Court of Chancery? Exactly. That I understand to be a very great inconvenience in the law of partnership, even when there are but a few partners concerned. It is hardly possible for them to obtain any decision of questions arising between themselves, unless they consent to break up the partnership, and even then only by the extremely expensive process of a proceeding in the Court of Chancery.
Do not the difficulties which exist render it quite impracticable for the humbler classes to join together for such purposes? I imagine they do so at a very great risk. And with regard to the permanence of any association consisting of great numbers, where the members cannot know one another, nor have a sufficient guarantee for each other’s integrity and good sense, it can be hardly possible for any association to keep together long without providing some easy means of obtaining a settlement of their disputes and of preventing frauds.
Do not you think it would be politic and wise to afford them some such facilities as we have spoken of, with regard to preventing fraud between themselves, and summarily enforcing the rules made by them? I have no doubt that it would be of the greatest value, both in regard to such associations and many others.
Putting aside all consideration of the law of partnership as to limited liability, because you have stated that possibly that might not be necessary, would it not be just and politic to give to those working people associating together facilities, in the first instance, for preventing fraud among themselves, by summary jurisdiction before a magistrate; and, secondly, that of enforcing the rules before a magistrate also? I should think that hardly anything which the Legislature could do, in the present state of society, and the present state of the feelings of the working classes, would be more useful than that.
Both those powers are given by the Friendly Societies Acts[*]to certainassociations enrolled under those Acts, are they not? I am not particularly acquainted with the provisions of those Acts; but I have always understood that there are peculiar facilities afforded, and that there is a Government referee in the case of those societies, who is a judge in some degree, I do not know with what powers, as to the rules which they establish, and which they are governed by; so that he is in some measure both adviser and judge how far the regulations of the societies are conducive to the objects they have in view.
Would it be advantageous to the classes that have been referred to, to give them facilities for enrolling themselves under the Friendly Societies Acts, or to give them similar powers, without giving them any peculiar advantage except that facility which the law gives? I think it would be very useful. A limitation of the responsibility, so far as relates to the working classes themselves, might not be essential; but still I think that an alteration of the law in regard to the responsibility of partners would be of great importance to those associations, not for the sake of the responsibility of the operatives who may be members of such associations, but in order to induce persons of capital to advance it to them for those purposes. I think that the great value of a limitation of responsiblity, as relates to the working classes, would be not so much to facilitate the investment of their savings, not so much to enable the poor to lend to those who are rich, as to enable the rich to lend to those who are poor.
Do not you think that if such limited liability were introduced, under reasonable safeguards, many benevolent persons, or persons desirous of giving facilities to improve the condition of the working classes, would be willing to lend moderate sums, say from 100l. to 200l. or 300l. to put them in action? I have not the least doubt that many persons would do so.
At present if they do so they have no security, for if they take any share of the profits they become liable to the whole amount of their fortunes? They do. It is true they might save themselves from unlimited liability by advancing the money in the form of loans: but that would not be of nearly so much use to the borrowers; because those who advanced the money as loans would come in as creditors in common with all other creditors, and therefore would diminish instead of increasing the amount of credit to which the association is entitled; but if they came in as commandite partners, that would enable the association to benefit, not only by the capital advanced, but by the credit which that capital would give them, and which would be equivalent to so much more capital.
Do you think from what you have heard among the intelligent members of the working classes and others friendly to them, that some such regulations as those which have been mentioned would go far to promote contentment amongst them, and to remove causes of discontent? I think it would promote contentment in a very great degree, and that it ought to do so; it would remove one great cause of discontent, and a very just cause.
Do you not think, even supposing that the industrial combinations referred to should not succeed, that it would be judicious to allow them to try the experiment, and to undeceive themselves supposing they should be disappointed in the expectations they had formed? I think even if it were quite certain that they would not succeed, it would be of the greatest importance that they should be allowed to try the experiment, and that they should have every facility given to them, to convince those who were trying the experiment, that it was tried fairly. Besides, even if such experiments failed, the attempt to make them succeed would be a very important matter in the way of education to the working classes, both intellectually and morally. I may add that I see no reason why they should not succeed; they are under some disadvantages, but they have other advantages, and it is quite a question whether the advantages do not preponderate. I think it is a matter which experience can alone ascertain.
Are you aware that amongst a portion of the more intelligent of the working classes, an opinion prevails that the present laws are unjust and unequal, and prevent them having fair play in the use of their small capitals, and which they think is afforded to persons possessing greater wealth? Yes, and I certainly see great reason in that. The advantages which the possession of large capital gives, which are very great, and which are growing greater and greater inasmuch as it is the tendency of business more and more to be conducted on a large scale; these advantages are at present, not from any intention of the Legislature, but arising from things into which intention does not enter at all, to a great degree a monopoly in the hands of the rich, and it is natural that the poor should desire to obtain those same advantages by association, the only way in which they can do so. Perhaps I may add this also: I think there is no way in which the working classes can make so beneficial a use of their savings both to themselves and to society, as by the formation of associations to carry on the business with which they are acquainted, and in which they are themselves engaged as workpeople, provided always that experience should show that these associations can keep together. If the experiment should succeed, I think there is much more advantage to be gained to the working classes by this than by any other mode of investing their savings. I do not speak of political or social considerations, but in a purely economical sense. When it has happened to any one, as it must have happened to most people, to have inquired or to have known in particular cases what portion of the price paid at a shop for an article really goes to the person who made it, and forms his remuneration, I think any one who has had occasion to make inquiries into that fact, must often have been astonished to find how small it is, and how much less a proportion the remuneration of the real labourer bears to the whole price than would be supposed beforehand; and it is of great importance to consider what is the cause of this. Now one thing is very important to remember in itself, and it is important that the working classes should be aware of it; and that is, that this does not arise from the extravagant remuneration of capital. Capital, when the security is good, can be borrowed in any quantity at little more than three per cent., and I imagine there is no co-operative association of working-people who would find it their interest to allow less than that remuneration, as an inducement to any of their members who, instead of consuming their share of the proceeds, might choose to save it, and add it to the capital of the association. Therefore it is not from the remuneration of capital that the evil proceeds. I think it proceeds from two causes: one of them (which does not fall strictly within the limits of the inquiry which the Committee is carrying on) is the very great, I may say, extravagant portion of the whole produce of the community that now goes to mere distributors; the immense amount that is taken up by the different classes of dealers, and especially by retailers. Competition no doubt has some tendency to reduce this rate of remuneration; still I am afraid that in most cases, looking at it on the whole, the effect of competition is, as in the case of the fees of professional people, rather to divide the amount among a larger number, and so diminish the share of each, than to lower the scale of what is obtained by the class generally. Another cause, more immediately connected with the present inquiry, is the difference between interest which is low, and profits which are high. Writers have very often set down all which is not interest, all that portion of profit which is in excess of interest, as the wages of superintendence, as Adam Smith terms it, and, in one point of view, it is properly called so. But then it should be added, that the wages of the labour of superintendence are not regulated like other wages by demand and supply, but are in reality the subject of a sort of monopoly; because the management of capital is a thing which no person can command except the person who has capital of his own, and therefore he is able, if he has a large capital, to obtain, in addition to interest, often a very large profit, for one-tenth part of which he could, and very often does, engage the services of some competent person to transact the whole of the labour of management, which would otherwise devolve upon himself. I do not say that this is unjust in the present state of society, for it is a necessary consequence of the law of property, and must exist while that law exists in its present form; but it is very natural that the working classes should wish to try whether they could not contrive to get this portion of the produce of their labour for themselves, so that the whole of the proceeds of an enterprize in which they were engaged might be theirs, after deducting the real remuneration of the capital they may require from others, which we know does not in general, when the security is good, much exceed three per cent. This seems to be an extremely legitimate purpose on the part of the working classes, and one that it would be desirable to carry out, if it could be effected; so that the enterprizes in which they would be engaged would not be conducted, as they are now, by a capitalist, hiring labourers as he wants them, but by the labourers themselves, mental as well as manual, hiring the capital they require at the market rate.
You think, under the circumstances you have referred to, that at all events the more intelligent of the working classes fully believe that it would be a great advantage to them to be enabled to carry out this experiment? They certainly do.
And that it would be but just and politic to allow them, under reasonable safeguards, to do so, that if they are right they may receive the benefit, and if they are wrong they may be undeceived in their unreasonable expectations? Certainly; and there would be this great advantage, that supposing those associations embraced only a small part of the working classes, they would have almost the same salutary effect on their minds as if they embraced the whole; because if a number of those associations were in existence, and they were found to be able to maintain their ground, and to compete well or tolerably, or to compete under great disadvantages even, with individual capitalists, still the whole of the working classes would see that all such disadvantages arose not from the law, but from the nature of the case, or from the absence of the necessary qualities in them; therefore those who might continue to be receivers of wages in the service of individual capitalists, would then feel that they were not doing so from compulsion but from choice, and that taking all the circumstances into consideration their condition appeared to them preferable as receivers of wages.
Putting aside the question as to the unlimited liability of partners, but supposing that capital was found by any parties willing to lend it, what the working classes would desire then would be simply to have laws to prevent fraud amongst themselves, and to enforce the rules which they might make in a simple and inexpensive manner? Those would be the primary objects which I think they would chiefly desire.
w. ewart:Are the Committee to understand you to say, that the effect of this co-operation on the part of the working classes would be to cut off the cost of the intermediate agency between the producer and the consumer? Exactly. I may mention that as long ago as the years 1837 and 1838 I have heard intelligent leaders of the working classes speak of this state of the law as one of the greatest grievances which the working classes had to endure.
f. peel:But the share that falls to the retail dealer must vary very much in a small town and in a large town? No doubt, estimated by the ordinary rule of per centage, the profits where the market was small must be greater in order to afford any remuneration whatever for trouble.
Would the effect of those associations be to reduce the cost of commodities? Associations of workpeople for the purpose of co-operative production would not necessarily have much effect in diminishing the amount of the produce which now goes to the distributors; there might, however, be co-operative shops or bazaars, and in that way the function of distribution might be reduced to the employing of a much smaller number of persons than at present. The greater the number of productive labourers, the greater, in general, is the produce: but an increased number of mere distributors has no tendency to increase the quantity of wealth to be distributed, but only quarters an additional number of persons upon it. For this reason, some of the writers and thinkers of the co-operative school have thought it desirable that distribution should be, as it were, a public function; in which case the distributors might be reduced to a very small number; as the whole of the distribution, that is, the buying and selling, which is required for a village for instance, or a small town, might be performed at one office by very few people. These speculations are not immediately applicable to practice in present circumstances, but still they are not altogether from the purpose.
j. ellis:Have you any good reason to suppose, that if these facilities were offered, money could be borrowed at 3, or 3½ per cent., or 4 per cent.; can you cite any case? I think it probable, certainly, that it could not at present, or perhaps for a long time, be borrowed at such a rate as that, because there would not be sufficient confidence in the security.
r. a. slaney:If by any alteration of the law there was sufficient confidence felt in the security, do you think then that it might be borrowed at some such rate as that? We know that when the security is good, that is the ordinary rate of interest now, and anything more than that is compensation for risk, or for some peculiar disadvantage. I suppose that money could be obtained at that rate if the security were considered good, and if these associations did as much business as a tradesman in good credit, or as merchants with a similar amount of capital do now, they could borrow at the same rate in time.
Supposing the interest of the money to be gauged by the interest paid in the public funds, then every increase of interest above that is in some sort an insurance interest? Yes; I only mentioned that rate of interest to show that it was not the extravagant remuneration of capital, properly so called, which is the reason why less than is desirable goes to the actual producer; because it is impossible to say, when capital can be borrowed, as we know it can, at such a rate as that, and in almost any quantity, that that is too great a remuneration for the abstinence exercised in saving.
j. ellis:Are you aware that 4 and 4½ per cent. is now very freely given,when the security is very ample indeed, for very large sums of money? I am quite aware that the rates vary. I have understood that when the lender can get his capital back again upon short notice, it may sometimes be borrowed at as low an interest as 2 per cent.
r. a. slaney:Do you not think it possible, without stating a confident opinion, that for any of the industrial enterprises which we have spoken of, and to which we have contemplated that facilities might be given in the mode mentioned, if the intelligent minds of the working classes were directed to such objects, that very likely there might be discoveries of economical improvements where they had to manage their own affairs, such as we have not yet seen, and which might produce considerable benefits? I should think so.
Is it not well known that most of the many inventions for the improvement of machinery from time to time have been made by the workmen themselves? I believe they have very often.
Do you not think it is likely that the intelligence of those men directed to the management of their own affairs would from time to time suggest improvements in the objects to which their attention was directed? I think we can hardly set limits to the consequences that might arise in the way of improvements, from the feeling that would be diffused through the whole of the persons employed in an undertaking, of personal interest in its success.
At the present time, however, existing circumstances prevent that taking place? To a great degree.
w. ewart:Have you had the advantage of the experience of any such co-operative societies in America or Holland, or in other countries on the Continent? There exist many such in several countries, especially in France; but I believe they are of too recent origin to afford much experience of their success; we shall probably have to wait some years before the experiment can be considered as conclusive.
In the United States of America have such experiments been tried, to your knowledge? I understand your question as applying to associations of workpeople, and I believe there are in America a considerable number of manufacturing associations in which all the workpeople have an interest; I have understood that that is the case with many manufacturing establishments in New England; that they are held in shares, and that the operatives are almost all shareholders, and all may expect to become so.
t. greene:With limited liability? I believe so.
r. a. slaney:In page 324 of your work, volume 2,[*]you refer to the co-operative principle of capitalists and workmen as prevailing in American trading ships, and among the Cornish miners also? Yes; I am not particularly acquainted with the circumstances as to the Cornish miners; I mentioned them as instances of the advantage which was ascertained by experience to arise from allowing an interest in the undertaking to all the persons employed; I do not know that they are partners in all those cases, but they have an interest, and that varies with the success.
You think under such circumstances that would be likely to stimulate their activity and intelligence? It could not fail to do so; I believe that the working people are generally found to be particularly intelligent and zealous under such circumstances, and that has been always remarked of the Cornish miners.
You have quoted in your work[*]Mr. Babbage’s example of the fishermen on the south coast, and other examples, to show how applicable, under certain circumstances, the same principle would be to manufactures? Yes.
That it would be quite practicable to give a moderate interest to the workmen in such a way as to stimulate their good conduct and their industry? A very interesting pamphlet has been published by a French employer of labour, a house-painter, named Leclaire;[†] and I understand his experiment still goes on, and goes on with great success. He speaks very strongly of the moral improvement which it produced in his workmen; an improvement in their conduct both when at work and even at other times; they seemed to have assumed quite a different character, through the feeling that they were not merely working for some one else but for themselves. It seemed to raise them in their own estimation, and induced them to cultivate careful habits of all sorts.
You have also stated in a passage in page 459, “the industrial economy which divides society absolutely into two portions, the payers of wages and the receivers, the first counted by thousands and the last by millions, is not fit for indefinite duration.”[‡]Is that the opinion you still entertain? I do.
You think that improvements may be made in those respects by carrying out some of the plans that we have spoken of in such a way as, without endangering property, would give greater contentment to many of those persons? I think that the remuneration of capital, properly so called, would not be felt under those circumstances by the intelligent among the working people to be a grievance. And speaking generally, I do not think that they feel so much, either in this country or in others, the inequality of property, considered in itself, as they do the inequality consequent upon it, which unhappily exists now, namely, that those who already have property have so much greater facilities for getting more, than those who have it not, have for acquiring it.
At pages 469 and 470[*]of your work you have given the example of the good working of the system in New England, and have enumerated the benefits received from it as many and lasting, and amongst those advantages you particularly mention that the workmen consider this principle as a sort of stepping stones to enable them to raise their condition, by little and little, according to their industry and intelligence, and that it goes far to content them with their humble situation? No doubt; because it makes their situation not a humble one.
w. ewart:You think that the possession of power by the working classes to co-operate in the way you have mentioned, would satisfy them, at all events, if the results did not equal their expectations? I think if the experiment failed, they would see that it failed from some defect either in the principle or in their qualifications for carrying out the experiment.
Have you ever inquired into that association conducted on the co-operative principle, called the “People’s Mill,” at Leeds? I have heard of it; but I am not particularly acquainted with it.
j. a. smith:Are the Committee to understand you to suggest as one of the most useful things in reference to these co-operative societies, an alteration in the law, which may be called an alteration in the law of partnership as affecting them, and should you advise that generally, or confine it specially to the working classes? I think such an alteration particularly important as regards the working classes at present, but I would make it universal.
If there were a limitation, could you give the Committee any mode of ascertaining to what extent the principle might practically be carried in reference to those particular views at once? I think it would be difficult; at any rate I have not considered that point, because I have never seen a necessity for any limitation.
With regard to the limitation, is there any mode of arriving at that by limiting the objects to which you would apply the co-operation? It would be very difficult, I think, to draw any line, and to say that the principle is fit for some objects and not for others; I do not see any object for which it is unfit, though it may be more necessary for some than for others.
In reference to the results in an economical point of view, if I understand you rightly, you imagine that if it were generally adopted it would very much limit the number of retail dealers? It is uncertain whether any such effect would be produced at first, since the co-operative associations of workpeople are associations for carrying on production rather than distribution; still I do not doubt that retail dealing might be carried on by associations of shopmen and clerks without the assistance of great capitalists.
Do not these societies, as far as we have any experience of them, combine production and distribution? Some of them do.
If they do combine distribution and production, that would tend very considerably to limit the number of distributors, would it not? No doubt.
Should you consider that desirable, or the reverse? I should consider it desirable, provided it were done without the assistance of any restrictive laws or privileges.
Why should you consider it advantageous? On the same principle on which it is advantageous to suppress any useless intermediate steps in the process of production. If any of those who are employed in the production of wealth can be rendered unnecessary by any new discovery, it is thought an advantage to do so. If the business of distribution, which now employs, taking the different classes of dealers and their families, perhaps more than a million of the inhabitants of this country—and that is a very large draught upon the total wealth of the country—if all that they do could be done by a hundred thousand people, I should think the other nine hundred thousand could be dispensed with, and that would be the same sort of advantage as dispensing with labour by any improvement in production.
w. ewart:Would not this illustrate your principle: In the town of Liverpool formerly the consumers were supplied from shops; a few years ago large markets were established in that town, and on a very splendid scale. The consumers did not go any longer to the intermediate distributors, but went to the markets, and therefore there was in that instance, by the operation of improvement, a cutting off of the intermediate agents between the producers and the consumers, of course with much greater cheapness to the consumers than formerly? Exactly. I understand that there are many branches of trade in which certain grades and classes of middlemen have been dispensed with, a more direct communication being established between either the wholesale dealers and the consumers, or the wholesale dealers and some particular class of retailers. I believe there was a much greater number of factors, brokers, and such intermediate agents between the different classes of dealers, formerly than there are now.
j. a. smith:You do not mean that it was an undecided question whether the number of retail dealers or distributors would be diminished or not, and that it was possible by this mode of co-operation that production would take place at a less cost, and therefore consumption be largely increased? I think that is an undecided question, certainly; there is a good deal to be said in the way of probabilities on both sides, but it could be clearly ascertained by the common law of competition. If this mode of production was found more advantageous and economical, it would undersell the others of course, and if not it would be undersold.
Generally speaking, you think, as an economical question, that it would be desirable to encourage associations of this co-operative character? Decidedly.
r. a. slaney:To give them fair play, at all events? To give them all possible facilities, but no premium.
j. a. smith:But it is to a certain degree an experiment, if the law of partnership, as affecting them, is much to differ from the law of partnership as affecting the community at large? Yes, that enters into the question, whether the law as respects the community at large should not be altered.
w. ewart:Do you think it would be advisable to make a special law, in fact, for any particular class without considering the expediency of altering the whole law with regard to partnership? If it were not possible to alter the law of partnership generally, altering it in favour of a particular class would be, I will not say objectionable, but it would be a serious argument against it.
j. a. smith:Would any alteration of the law of partnership, inter se, affecting the large transactions in the commercial world in England necessarily involve a machinery of expense and delay, bearing in mind, that however it might be simplified, it could hardly be made applicable to small enterprises, such as those which have been spoken of? It would give the smaller enterprises an advantage, certainly; but I am not aware that that advantage would be greater than what arises from any arrangement for the administration of justice, or the decision of disputes by tribunals or by arbitrators.
Are you not rather looking to a tribunal of less authority and less weight and less importance, in reference to the disputes of these workmen amongst themselves when associated together co-operatively, than to a tribunal of a higher order, with greater knowledge and experience, and greater weight, which would be necessary to decide the various difficult questions arising out of partnerships engaged in large transactions in commerce? I have understood that there is great difficulty and inconvenience felt in the case of ordinary partnerships for want of a tribunal. If there were a tribunal properly constituted, and adequate to decide such questions, which are often, and necessarily so, of a very complicated nature, I should think that this class of associations would rather be under a disadvantage than an advantage in consequence of their great numbers.
There might be a more expensive tribunal than those people could afford to go to? If it were made a general measure, probably it would be thought that the State ought to supply the tribunal, as it does in all other cases.
The State when it does give in other cases a tribunal of justice managesto make it tolerably onerous? Yes, it does; but many people, of whom I am one, think that one of the great defects in the present institutions of all countries.
r. a. slaney:Would it be equal justice that a tribunal for the decision of disputes between partners should be so costly that it would be utterly impossible for the working men to go into it at all; and do not you think that where the existing law is such as that humble persons joining together as small capitalists are utterly deprived of any tribunal, that is an unjust state of things? I think so.
j. a. smith:Inasmuch as that question as to the expense of law is of very great importance, and an extensive question, which must involve long consideration and long time in its settlement, would it not be expedient, at all events in the meantime, that some means, even if it were temporary, should be given to the working classes to settle disputes amongst themselves in an easy, effectual, and cheap manner, by reference to a tribunal to be appointed for that special purpose? Perhaps so. It takes so long to frame, and so much longer to carry, a general measure of improvement in the law, that it is sometimes desirable to have a temporary measure applicable to particular classes of cases.
Do you think there is anything in the present tone and temper of the working classes which would make it now desirable to give attention to this subject? I think there is at this moment more than there has ever been before, and there is likely to be more and more, a feeling on their part, against all the inequalities which exist in society. There is a very growing feeling of that kind, and the only way of mitigating that feeling is to remove all inequalities that can be removed without preponderant disadvantages.
r. a. slaney:At all events, by that means you could give them facilities for trying industrial associations, without giving them privileges, but merely those facilities which you think would be politic? Certainly.
w. ewart:Do not tribunals exist in France, self-formed among the working classes, called, “Société de Prud’hommes”? The “Conseils de Prud’hommes” are public institutions for the purpose of arbitrating in disputes between the masters and the workpeople. Before the February revolution they consisted entirely of masters; but by a law subsequently enacted, they have been constituted on a different footing, and are now composed of masters and workmen in equal numbers; including among workmen the Chefs d’Ateliers.
r. a. slaney:Do they work pretty well? I have not much knowledge of that; the law has not existed very long.
w. ewart:With regard to the Tribunal of Commerce, that is constituted, is it not, of persons conversant in trade? Yes, the judges are elected by the merchants of Paris.
j. a. smith:Have they anything to do with the settlement of disputes? They are an established court of justice in commercial cases; I do not know whether in all such cases, or only in some. It is one of the principles of that branch of French law that questions of mercantile law should be decided on by merchants, and not by lawyers; the parties plead their own cause.
Do you think that is a sound principle? I think that still better tribunals might be devised.
r. a. slaney:Without speaking of those industrial associations, but with reference to the general law of partnership, and to some alteration of the law of unlimited liability, do you not think that the existing law of unlimited liability has a tendency to prevent persons of prudence and position in their respective neighbourhoods from taking shares in any local enterprises of moderate risk, on account of their being liable to the whole amount of their properties? I should think it must have that tendency.
Are you aware with reference to the proposition which was made in this metropolis for the purpose of establishing model lodging-houses, which were intended for the improvement of the condition of the working classes, to be carried on by joint shares, and in which many noblemen and gentlemen took shares, that the first thing that prevented its being carried out was the law of unlimited liability? I have heard so.
And that they were obliged to apply for a charter? Yes.
And that the charter cost upwards of 1,000 l.? I have heard that it did, but I do not know that personally.
Supposing that the cost of obtaining a charter is what I have stated, do not you think that, and the law of unlimited liability, two circumstances almost sufficient to prevent any parties from embarking in such undertakings? We see that they do embark in them very often; but I have no doubt they are often prevented by the circumstances that you mention.
Do not you think that in many of the large towns in this country it is probable that persons, if they had facilities given them of taking shares with limited liability for local enterprises of public benefit, would be willing to do so? Many persons no doubt would.
Are you aware that application has been already made from eight or ten large towns to have the shelter of the charter given to this society for improving the dwellings of the humble classes in London? I have heard it mentioned.
Do you not think that if such advantages were conceded, either by limited liability confined possibly to such enterprises, or by means of limited liability given by a charter, without expense and delay, that it would give great encouragement to such enterprises being carried out in those large towns? There are two questions of limitation of liability; one is that of allowing commandite partnerships, under which the managing and acting partners are under unlimited liability; and the liability that is limited is only as to those who advance capital, but do not take part in the management. The other is the question of allowing perfect freedom of forming joint-stock companies with unlimited liability; and that is a question much more difficult than the other. It there were a general law, by which persons might form themselves into joint-stock companies with limited liability whenever they pleased, I think you ought to allow individuals also to limit their liability, giving due notice; in order that the competition might be equal. It would be a very great alteration in the present state of the law, but one to which general principles are favourable. On general principles, one sees no sufficient reason why people should not be allowed to employ their capital and labour on any terms that they please, and to deal with others on any terms that they please, provided those terms are known, and that they do not give themselves out for what they are not. Still that is a more difficult question than the question of commandite partnerships; and it is very possible that in the case of joint-stock companies with unlimited liability, it might be better to consider each particular case on its own merits; to facilitate the obtaining of a charter where the purpose was of public utility, and to take away the expense in cases where the public advantage was recognised.
Supposing in the law of partnership, either for particular enterprises or generally, there were introduced limited liability, are there any safeguards which you think it would be right to introduce against fraud; as, for instance, that the shares should be paid up, that the names of the shareholders should be known, that there should be a public audit, that the accounts should be open, and that the interest upon the shares should be limited, or any such conditions as those which I have mentioned? Does the question relate to companies with unlimited responsibility of partners, or to commandite partnerships?
Either to one or the other, as you may think it right to apply the limitation. In the case of commandite partnership there does not seem to be a necessity for anything like the same amount of precautions that might be necessary in the other case, but generally speaking I should say that any security that could be taken for complete publicity would be desirable; anything tending to prevent the terms of the business from being held forth as different from what they really were.
Anything to prevent fraud upon the public, in short? Anything to prevent people from being misled as to what they had to expect.
Do not you think that some kind of precaution to prevent uneducated or incautious persons from being induced by the plausible representations of projectors from entertaining too high an opinion of the speculation that shall be entered into (for instance, as to the amount of capital to bedivided), might be advantageous? The reason that you suggest, the danger that persons might be deceived by projectors, is the same reason which was long given for maintaining the Usury Laws;[*] and it seems to me that the prohibition of commandite partnership belongs to the same kind of legislation as the Usury Laws. It belongs to the idea that the law ought to regulate the terms on which money shall be permitted to be lent, under the supposition that the lenders are not capable of taking care of themselves. I look upon commandite partnerships as a mode of lending. So long as it was the principle of the law that you ought to prevent people from lending at more than a limited rate of interest, it was necessary to prevent them from evading the prohibition, and doing the same thing in an indirect way; but that principle the law appears to have given up, with a single exception, for which reasons other than those of public utility may be assigned; the case of contracts relating to land. I think it an inconsistency to say that people are free to lend money in the ordinary way at any rates they like, but that there shall be one particular mode of lending from which they are interdicted, namely, lending at a rate of interest varying with the profits of a concern; which is the only difference between commandite partnerships and any other loan, except one other difference, which is greatly to the advantage of all parties, namely, that the loan by commandite increases the security of all the other creditors instead of diminishing it, because all the other creditors must be paid out of the capital of the commanditaire before he can recover anything.
Do you think, on the whole, that the introduction of the law of commandite, with such safeguards, or regulations, or limitations as the wisdom of the Legislature might introduce, would be advisable? I see no reason against it.
Do you think that if it were introduced, with such regulations and such safeguards, it would give additional facility for enterprises directed by intelligence, and create additional facilities for the investments of the middle and working classes? I think it would do both these things; and above all, which is very important, it would enable personal qualities to obtain in a greater degree than they can now the advantages which the use and aid of capital affords. It would enable persons of recognised integrity and capacity for business to obtain credit, and to share more freely in the advantages which are now confined in a great degree to those who have capital of their own.
j. a. smith:You do not think that in this country any enterprise that offers a chance of more than an ordinary rate of profit is ever stopped by want of capital? It is difficult to say; I think one can never tell while a restrictive law exists, what number of useful things it prevents. In the case of the duties which have been taken off, a number of minor articles in the tariff, nobody could have told before the duties were taken off whether they prevented much commerce or not; I believe in many cases that branches of trade have risen up since which promise to be of great importance. In the same manner I do not think anybody can now appreciate the degree in which the existence of restrictions on partnerships may prevent persons of capacity for business from obtaining credit and the use of capital which would be advantageous to the public and to them.
Does it seem an unreasonable inference from the existence of so many enterprises of a very speculative and wild character, that no reasonable enterprise has failed from want of capital? Perhaps, with regard to the very same people who encourage rash enterprises, the same imperfection of judgment might make them reject beneficial ones.
That would not arise from reluctance to embark capital, but from a want of discretion in the selection of the mode of embarking it? It might arise from this: there might be the promise of more brilliant success in the enterprises they undertook, than in those which they rejected. There may be many cases in which the promise of possible benefit is not so tempting, but in which the chances of profit would on the whole be better.
The danger of responsibility is not the motive or the reason why they reject a sound scheme? It is possible that rash people now do advance capital, and that the prudent do not in the same degree.
r. a. slaney:Do not you think that the existing law has rather a tendency to give advantage to persons possessing large amounts of capital, and disadvantage to those possessing small amounts of capital? I think that is the tendency of the present law of partnership.
Do not you also think the unlimited liability of partnerships has a tendency to keep out of partnerships persons of cautious and prudent habits, who would be the very persons likely to direct many local enterprises? I think it must have a great tendency to induce prudent people, when they are no longer able to give personal attention to business, to take their capital out of such enterprises.
And to abstain from investing it in them? Yes.
Are not enterprises guided by prudent and cautious persons, the very enterprises one should seek for, for the investments of the middle and industrious classes? In the case of persons of very small means, no doubt security is the primary consideration, much more than profit, but in the case of the middle classes very often the advantage to them would be great of having a tolerably safe investment for their savings, which would at the same time promise them a higher degree of interest than the means which they must have recourse to at present.
Do you think that such local enterprises would be more cautiously andproperly guided, if limited liability were introduced in them, so that more cautious persons would be willing to embark in them? I should think so; I have not very specially considered that part of the subject.
j. a. smith:Do not you think that the existence of limited liability would render it probable that enterprizes would be undertaken with even less scrutiny and less examination than under the present law? I do not see that. At present it is in the power of anybody to commence these businesses with borrowed capital. Now the same person who has sufficient confidence in the undertaking to risk money en commandite upon it, would probably advance the same amount on loan; which would be a less advantageous mode both to the borrower and to all persons with whom he might deal, because the lender would come into competition with the other creditors in the event of failure, instead of supplying funds out of which their claims might be satisfied. The Legislature does not think it necessary to restrict people from carrying on business with borrowed money, lest it should give a stimulus to speculation; and there seems no reason why, when it permits borrowing in every other mode, it should select for prohibition the one mode which is at the same time the most useful to the borrower, and the most advantageous to the security of all other creditors. A person to whom 5,000 l. have been advanced in commandite, is in exactly the same position with regard to those who have transactions with him as if he had inherited, or acquired that sum in his own right.
You give an unqualified opinion in favour of commandite partnership, and an undecided opinion with respect to joint-stock companies with limited liability? Yes.
Is it easy to distinguish between a large commandite partnership and a joint-stock company? The distinction in principle is clear enough, because where the law of commandite exists no person whose responsibility is limited is allowed to do any act whatever as a partner; he may inspect the accounts and give his opinion and that opinion will have weight, but he cannot act towards any third party as a partner, nor even as an agent, nor can his name appear in the firm, nor can be he held forth as a party concerned; so that he is in reality merely a creditor; but he is a creditor on peculiar terms; that is to say, he receives nothing at all unless the concern is profitable; if it fails he is the last satisfied, and may lose all, when no other creditor loses anything.
You consider that the great distinguishing feature and merit of the commandite system is the unlimited liability, the complete responsibility of the managers? And the facilities for publicity: though even without publicity, I see no greater objection to commandite than to any other mode of carrying on business with borrowed money. As long as a person in business can borrow at all, persons may deal with him under a supposition that the capital with which he is trading is his, when in point of fact it may all have been borrowed. Still the case of commandite partnership affords facilities for giving publicity, which are taken advantage of in the American and French law. Both in the law of New York and in the French law the amount of the sum advanced en commandite must be registered, and the number of persons from whom it comes; and the fact that the amount is registered enables persons dealing with that firm to be acquainted with the resources of the firm much more than with those of any other firm whatever.
r. a. slaney:You think on the whole that the law of commandite, with such improvements as might be suggested upon deliberation, would be advantageous? Very advantageous.
Do you think that it works well in Holland and America; and I believe it prevails also in France and in Germany? I am not informed as to its working anywhere but in France and in America. I believe the general opinion there is, that it works very well.
j. a. smith:In reference to the economical interests of the middle and industrious classes, do you conceive it is desirable that in choosing their investments they should think more of perfect security or of a high rate of profit? In the case of the working classes no doubt security is the main object, and in the case generally of all those whose savings are small.
Agreeing with you mainly in that view myself, would it not influence you in your decision as to presenting this temptation or encouragement to the working classes to engage in trade? In regard to the working classes it could make very little difference; I think it would be neither an encouragement nor a discouragement; the savings of those classes are seldom so large as that they have much more to lose, if they lose what they have invested.
Does not that make it still more important to them to keep what they have? Only, if they are to invest it at all, they are equally liable to lose it whether commandite is permitted or not; if they had unlimited liability, it would be just the same.
My question meant this, would it not be a thing to be desired, for instance, that they should rather put their savings into the Three per cent. Consols than avail themselves of almost any other devisable means of investment? With certain exceptions; for instance, the associations referred to, the associations by the working classes to carry on, as their own capitalists, their own employment. I think those have very great advantages over any other investments for the working classes. Those associations are on a very different footing in point of security for good management from joint-stock associations generally. Ordinary joint-stock management is management by directors only and the directors are very often not chosen with the necessary degree of discrimination, and are not sufficiently superintended, because the shareholders have other occupations, and their attention is otherwise taken up, and the sum they have invested is probably but a small portion of what they have; but in the case of these associations, in which the capital would be employed in carrying on a business with which all the persons concerned are alike familiar, which they know better than anything else, and which they are daily occupied about, their whole attention being given to it, they would be likely to keep a much better control over the managers, and to be much better judges of who would be the best managers.
Would it not almost follow from that, that you would not wish, as far as your desires went, to see the lower and working classes engaged in such enterprises as the Honourable Chairman has alluded to, such as bridges or roads? It is not very likely that they would engage in them. The means for carrying on such enterprises would be more likely to be supplied from the savings of the middle classes, and from sums which the higher classes could spare, and which they would willingly invest, though they would not willingly incur larger responsibility.
Have you any suggestions to make with regard to the working of savings banks in reference to the mode of investments for the poorer classes as now existing? I think it would be very useful to make the nation responsible for the amount deposited. Certainly the general opinion among the depositors hitherto was, that the nation was responsible; they were not aware that they had only the responsibility of the trustees to rely upon.
Are you aware that the Bill now before Parliament accomplishes that object? I am not aware to what extent it accomplishes it.
r. a. slaney:Would it be advisable to devise some mode by which the working classes might be enabled from their high gains at one period of the year to provide against the time when they might be out of work? It would be very useful.
Are you not aware that at the present time they have no safe investments into which they can put such a fund so as to be able, from what they gain at one period of the year, to make an allowance to those out of work at another period of the year? I am not aware how far the law of Benefit Societies affords them any advantages for that purpose.
j. a. smith:Are the Committee to understand you to mean that the savings banks offer a mode of investment to those who, while in the receipt of high wages, are willing to deny themselves and to save money against the time when they may be out of employment, or when wages may be much reduced; but that there ought to be greater facilities afforded for establishing mutual insurance funds amongst the men for the purpose of guarding against the contingencies arising from the chances of trade, sickness, and other accidents to which they may be liable? There is an association now projected, and I believe some progress has been made in it, under the name of the Tailors’ Guild, which has that object among others.
r. a. slaney:Do you think that additional facilities should be afforded for bodies of workmen under proper regulations to join together for the purpose of insuring to those parties who are out of work an allowance from their aggregated capital, or fund, laid together when they are in work? I do.
Do you think that that would be useful, not merely referable to the fluctuations of the demand for labour arising from the fluctuations in commerce, but also from the changes of season in particular works? Yes, and from changes of fashion.
The changes of seasons with regard to bricklayers and several trades have the effect in the winter months of rendering the demand for their services slacker than at other periods? In the case of those periodical slacknesses of work, as they all undergo them nearly equally, in the long run it must be from the individual’s own savings that he makes up that loss. But even as individuals they might be induced to practise greater economy, by forming themselves into an association and coming under engagements to one another; as is found in the case of the temperance societies, which primâ facie have the air of an absurdity, being associations not for the purpose of doing, but of not doing something; yet they are found very effectual in promoting their object.
Is not the principle of co-operation a very popular one among the working classes, and one which they are very desirous to carry out? It appears to be so.
Would it not be useful to direct that to good purposes? Even in the case of personal conduct the fact of being associated is felt as a sort of pledge that they will adhere to certain rules.
In the case of friendly societies, it seems to be carried out very effectually in providing against illness, does it not? Yes.
j. a. smith:On the other hand, has not the spirit of union amongst the working classes, or rather the expectation of benefit to be received from the trades unions, very much diminished of late years? I am not aware how far that has diminished of late years; but we so seldom hear of strikes now, that I should think that is the case. I have found that the intelligent members of the working classes have ceased to place the confidence in the effect of strikes which they did formerly, and which it was natural they should do as long as the Combination Laws were unrepealed, and even for some time after. The repeal of the Combination Laws[*] was I think one of the most useful things in its effect on the minds of the working classes, and on the soundness of their judgment, that the Legislature ever did.
r. a. slaney:You are aware generally that the proceedings regarding the title and conveyance of real property are very complex and expensive? Every one is aware of that.
Do you not think that that has the effect, as regards the middle andworking classes, of excluding that species of investment in a great measure from their means? I think almost entirely, and perhaps that is one reason why there is so little of that taste among the poor for investments in land, which is so universal in other countries.
Would it not be a great advantage if it were practicable to give facilities for a simpler and less expensive mode of conveyance, and the purchase of small portions of either real property, or divisions of charges upon real property, in the way of mortgage? No doubt it would be of great importance to do both. In regard to the last, that has been found to be of great importance practically. In Germany, one of the safest and most usual investments for small sums is in a kind of land debentures. My information is derived from reading a report by an officer who was sent by the French Government into Germany to study the laws and practice of the different States there, with a view of introducing improvements into the French law of crédit foncier, which has long been a great object in France, but has not yet been accomplished. This report was published, and contained a full account of the whole system of the laws of mortgage in the different States of Germany, from which it appeared that by a combination of the different landed proprietors, making their joint security available for each individual, a very convenient mode had been provided of raising money on mortgages, but which were always temporary; there was always a provision for redemption at the end of a certain time. Those mortgages were divided into shares, and the documents which conveyed the right to those shares, which attested the fact of the holder’s being a mortgagee to a certain amount, were very generally in use as an investment by all classes, and were found very convenient, and increased very much the facilities of mortgaging land for its value.
j. a. smith:And also increased the value of land? Undoubtedly, they must have had that effect.
You are also perhaps aware that an experiment with these land debentures is about to be made in Ireland; you would be highly favourable to that probably? Very much so.
Those debentures, sufficiently subdivided in amount, might give to the lower classes a degree of interest in the land susceptible of no question on the ground of subdivision? There could be no possible objections of an economical nature to that kind of subdivision.
It would not meet all the results that you think follow to the landowner by the possession of land? It would be a safe investment for small savings, and no doubt would interest the possessor in the security of landed tenure.
But it would not have the same effect upon his character and self-esteem as the actual possession of the land? I think it would operate in quite a different way; I do not think it would have any other moral effect than the possession of the same sum in a savings bank might have.
r. a. slaney:Do not you think that affording facilities to the middle and humbler classes, without interfering with the rights of property, for obtaining moderate portions of land, would also be of great advantage? Yes, in many ways.
As under the existing laws referable to landed property the title is so complex, and the difficulties connected with it are so great as that the middle and humble classes are almost entirely precluded from such investments, is it not the more necessary to give them facilities for investments in other ways? The difficulty is always greatest in investing small sums, and therefore the facilities are most necessary in the case of small amounts.
[[*] ]Principles of Political Economy (1848; 2nd ed., 1849), in Collected Works, II and III. Toronto: University of Toronto Press, 1965.
[[†] ]7 & 8 Victoria, c.110; amended, largely as a result of this Committee’s work, by 15 & 16 Victoria, c.31.
[[*] ]See 9 & 10 Victoria, c.27
[[*] ]Principles, 1st ed., 1848; in Collected Works, III, pp. 769-70.
[[*] ]Ibid., p. 770.
[[†] ]Leclaire, Edmé-Jean. Des améliorations qu’il serait possible d’apporter dans le sort des ouvriers peintres en bâtiments. Paris: Bouchard-Huzard, n.d. See Mill, Collected Works, III, pp. 770-2.
[[‡] ]Principles, 1st ed., II; in Collected Works, III, p. 896.
[[*] ]Principles, 1st ed., II; in Collected Works, III, pp. 904-5.
[[*] ]See 2 & 3 Victoria, c.37.
[[*] ]5 George IV, c.95.