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ENCOURAGEMENT OF INDUSTRY BY THE STATE - John Joseph Lalor, Cyclopaedia of Political Science, Political Economy, and of the Political History of the United States, vol. 2 East India Co. - Nullification 
Cyclopaedia of Political Science, Political Economy, and of the Political History of the United States by the best American and European Authors, ed. John J. Lalor (New York: Maynard, Merrill, & Co., 1899). Vol 2 East India Co. - Nullification
Part of: Cyclopaedia of Political Science, Political Economy, and of the Political History of the United States, 3 vols.
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ENCOURAGEMENT OF INDUSTRY BY THE STATE
ENCOURAGEMENT OF INDUSTRY BY THE STATE—Bounties, etc., General Principles. The word encouragement as here used includes the favors accorded by public administrations in the shape of bounties, money grants, loans or advances, freedom from taxation, etc., to foster any branch of industry, to facilitate any operation or encourage any work that may be considered particularly useful to a country. Bounties, then, are means of incitement used by government, or generally by public administration, in view of certain definite results. It would be a difficult matter to name them all, the more so that the shape they take is very variable, according to the object it is proposed to attain, the country and the times: but what we have to slay will suffice to give a general idea of the subject.
—Great confidence was formerly felt in the efficacy of bounties given by the public authorities. They were even believed in many cases to be a necessity, it might be to induce the commencement of industries altogether new, it might be to give others already existing greater development, it might finally be to give labor in general a salutary activity. Thus governments seldom hesitated when the interests of the country they guided were really the object of their solicitude, to lavish bounties indifferent shapes to the utmost extent of their financial ability. Colbert was a strong advocate of this course, and would have been stronger had he consulted only his love of the public weal and the advice given by some of the first minds of his age.
—People at that time did not sufficiently take into account the natural tendencies of industry and the potential energy of which it is possessed. It was thought necessary to encourage it to produce useful things, whereas the production of such is its natural tendency, its constant pre-occupation, its daily care. It was thought, at the very least, necessary to stimulate it in the paths it was following; and yet the stimulants it brings in its train are incomparably more powerful than those at the disposal of any government. Nor were the resources which it possesses thought of either, nor the magnificent recompense it bestows itself on whoever assists it in its progress. It is but just to add that the potential energies of industry and its internal resources were not as great formerly as they have become in our days, and that it might sometimes be necessary to supplement them.
—As industry and its tendencies have become better known, so has the confidence once felt in the beneficial effect of artificial inducements singularly diminished. It still exists, it is true, in many minds, but no longer with the same life, as generally or as absolutely as it did once. This may easily be seen by the conduct of most European governments. Although these governments are in general much more occupied with the interests of industry than were those which preceded them, because they much better understand their importance, they show themselves much less prodigal of material encouragement. We do not speak here, let it be understood, of that sort of indirect encouragement which they give, or believe they give, at the expense of consumers, by the increase of customs duties, but only of money bounties directly drawn from the public treasury. Bounties of this sort are to-day much less frequent than they have been at certain periods, regard being had to the relative interest displayed by governments in industry and the comparative extent of their resources. No government could be seen now-a-days, unless in exceptional cases, doing for industry what Colbert did with no little regularity: paying with state funds for the importation of certain products or certain industries; drawing by bounties foreign workmen to the country; subsidizing growing establishments; advancing money to silk manufacturers at the rate of 2,000 francs for every loom working, etc. No more could there be seen a government paying about 500,000 francs annually of a gratuity for the exportation of grain alone, with no other special object than then of encouraging agriculture, as for a long time during the last century the English government did1 More credit is given at the present time to that spontaneous activity of industry, whose energy and resources are much better understood than they were formerly. Except in certain special cases where action is taken in view of some great public interest, the direct assistance given to industry is limited to a few honorary rewards or insignificant pecuniary help.
—As for economists, it is scarcely necessary to say that they are for the most part but little in favor of bounties, even when they are not directly hostile to it. Knowing better than other men, because it is the object of their special study, the natural activity of industry, the soundness of its tendencies and the extent of its own resources, they believe that it is always best to leave it to itself, that is to say, to its inborn energy, limiting all help to securing for it freedom, order and security; and that there is often a risk of hindering its advance by interposing in its operations with untimely subsidies.
—However, although this belief is in a certain measure universal among economists, it must be confessed that they do not all possess it in the same degree, or at least that they are more or less absolute in the conclusions which they draw form it. Some seem to condemn subsidies utterly, as being invariably injurious except when they are totally ineffective and useless; others admit them as an exception in certain cases. Without discussing all the different opinions on this point, we shall try to sum up the principles, as they seem to us to result from economic works as a whole, and from the very nature of things.
—As a general rule it may be said, without hesitation, that the system of subsidies given by the state is a bad one. When any sort of work is really useful, that is to slay, demanded by the wants of society, general industry has no need of artificial stimulus to direct its attention to it, the natural stimulus which arises from the demand being sufficient. The encouragement to which it has a right springs, then, from its very source, that is to say, from the satisfaction of the demands to which it has come in answer. It consists in the recompense which it requires and obtains in return for the products which it delivers or the services it renders. The more valuable these services are, the more certain the reward. The more necessary the industry then, by so much the more effective is this natural encouragement. It is perfectly useless for a government to intervene to guarantee it or strengthen it.
—On the other hand, government intervention may sometimes have troublesome results. If the help is extended to an industry the produce of which has already been tried and accepted by consumers, it can only appear superfluous: but besides the impropriety of uselessly expending public money, there is also the risk of stimulating the industry beyond bounds, in such a manner as to drive it sometimes to exceed, in its production, the just limit of the demand. If, on the contrary, the help be given to a failing industry, the product of which seems to be abandoned by the public, it appears in every way to be merely sustaining, very unseasonably, a kind of labor which had better be given up; because it fails to return either to the country or to those who work at it what it costs them. In this case the damage done is twofold; and unproductive industry is being maintained at the expense of the public treasury, the extinction of which would be a benefit.
—We do not even admit that it would be ad advisable and good thing, in the present state of industrial relations, to favor, by money subsidies, the introduction into a country of a kind of work hitherto new to it. The resources of general industry are in our own times sufficiently extensive, and the facilities for communication between peoples sufficiently great, for it to be left to the care of private persons to introduce into their country any foreign industry capable of being acclimatized there. They are at least as interested in that as their government can be, and they are much better judges of the suitability of transplanting the new industry as well as of the fittest means of accomplishing it. As to the necessary resources, if they are wanting to some they will not be wanting to others. Their sum total is already a very sufficient one, and the tendency is still for it to increase from day to day.
—Is it then to be said on that account that official bounties ought to be prescribed in every case? Certainly not. Circumstances could be named in which it is scarcely permitted to doubt their necessity, and it which they have been productive of nothing but good. No writer known to us, for example, has pretended generally and absolutely to deny to the subsidies lavished by Colbert in France, all utility whatsoever. All are agreed, on the contrary, that France owes to them the birth or the development of some of the industries which have made its wealth. Very few will deny that it has been, if not absolutely necessary at least every useful, to subsidize the establishment and spread of savings banks.2 Deprived of all assistance from external sources at their commencement these banks would with difficulty have been established, and yet every one is eger to recognize the immense services they have rendered.
—The necessity or utility of bounties must then be admitted in certain cases. But what are these cases? It would be perfectly impossible to detail them all. All we shall attempt to do is to reduce them to certain principal ones.
—It seems to us at first proper to consider in this matter the country and the times. The necessity for official bounties is greater in a country the less advanced it is in civilization and wealth, and the more imperfect is its social or political organization. It is, to begin with, obvious that the greater the vigor and resources which local industry possesses they less need it has for external assistance, because it is able to undertake more for itself. This consideration would, however, be insufficient if it were not remembered that the countries where industry is least advanced and least rich, are also usually those in which it encounters the greatest obstacles from imperfect laws or vices in social order.
—If a state could be imagined in which freedom of industry was established in its entirety, without restriction or reserve; where the rights of all were, in addition, perfectly and completely guaranteed; we believe that it would be possible then without danger, nay, even with great advantage, to dispense altogether with official bounties of every description. Industry would always be equal to the task of supplying its own wants, it would launch without effort into every sort of useful labor, and would, besides, create for itself all the kindred institutions of which it stood in need. But this condition of perfect industrial liberty is not, unfortunately, that of any people on earth; on the contrary, nations are still, for the most part, far distant from it. Among almost all, the development of industry is retarded by trammels more or less strong; and often also the establishment of the appendant institutions of which industry may stand in need to second its efforts, is forbidden. If attention is paid to it, it will be seen that it is almost invariably some imperfection in social order which has rendered necessary, when it has been really necessary, the active intervention of public authority.
—The bounties lavished by Colbert were, we believe, very useful in some cases. Several very interesting branches of industry would not have been created without them, or, at all events, not till a much later period. But at the same time the utility of these bounties was only relative. It originated at first in the existence of privileged corporations which put in the way of a general development of industry, and particularly the starting of any new business, so many obstacles that private individuals scarcely dared face them, if dependent solely on their own resources, and would in any case have had the greatest difficulty in overcoming them. It sprang also from the absence of any institution of credit capable of aiding the efforts of the pioneers of industry by placing at their disposal the capital they lacked.
—In more recent times, if the savings banks could not be started in France without some special encouragement, it seems to us still to be the imperfections of social order which are to blame. They would not have needed those artificial stimulants if the establishment of companies generally, and joint stock companies in particular, had been less interfered with by the law; and if, on the other hand, there had existed in the country the vast net work of banking institutions which spring up so readily wherever men are free to establish them. In taking notice, then, of the majority of instances where official or external bounties have been necessary to industry, it will be seen that this need arose from an analogous if not an identical cause. It was perfectly just, to our thinking, and perhaps necessary, that in the times of Louis XIV, good writers, those whose works were an honor to their country, should have been rewarded or encouraged by pensions from the public treasury or the privy purse, because the right of property in their works held by those authors was then very little recognized and still less guaranteed them. This was another imperfection in the laws, different from those of which we have just spoken, but producing substantially the same effects. The exercise of their legitimate rights either could not be, or was not wished to be, secured to those authors, and it was more or less made good to them by pensions. Similarly it was but right during all the last century, as the rights of inventors were not secured to them by patents, and as in addition privileged corporations barred their advance at every step—it was but right, we say, nay, even necessary, that government should either grant those inventors some special privileges or subsidies, to assist them. In this latter case, as in the former, it was a sort of making good or indemnifying the wrong done. We do not say, however, that the government of those days reasoned thus, that it recognized the wrongs done and that its precise intention was to atone for them. Not so, but it realized that here had been services rendered which had not been paid for, and it paid for them in its own way when it was well inspired.
—It will be said that it would have been more logical to reform the abuses which were the obstacle to the normal development of industry, or which deprived certain private persons of the exercise of their legitimate rights. Doubtless it would have been more logical, but it would have been less simple and often more difficult to carry out. It is unhappily a matter of experience that in all countries the reform of abuses is slow, wearisome, and almost always bristling with the gravest difficulties, even for those who hold the power in their hands. Was it necessary, while awaiting the disappearance of all these abuses, to abstain from removing here and there, when it was possible, some of their most distressing consequences by bounties or subsidies properly given? We do not believe so. We will only say that official bounties scarcely appear to us to be useful except in similar circumstances, and that in all cases great circumspection should be used in their distribution to avoid interfering with the progress of the very industry which they are designed to assist. In our own days the British government has on several occasions made use of the system of bounties on a grand scale, to repair, as far as lay within its power, the injury caused by great errors formerly committed.
—When the negroes were emancipated in the British colonies there immediately arose there a great scarcity of manual labor. The freed negroes either refused to work, or turned to other employments than those they had formerly been engaged in, to such an extent that the workrooms of the colonists were almost deserted. To supply the want it became necessary to call in all haste free workmen from the countries nearest, and as the colonists had not perhaps all the means necessary to accelerate to the needful extent this movement of immigration, the British government undertook to help it on by powerful bounties. In a certain measure it succeeded. But the bounties it scattered broadcast did not fail to give rise to frightful abuses, which obliged it soon afterward to reconsider on short notice its former measures, to the great injury of all parties interested; so true is it that in following this path of official subsidies, even when the action is taken in view of a clear and pressing necessity, the evil is always found side by side with the good.
—More recently, English agriculture seeming to be hard pressed in its present interests, as it might be to a certain extent, on account of the sudden repeal of the corn laws, which had for so long assured it an artificial price for its production, it was resolved to lessen the damage done, if damage there were, by giving bounties here and there. This was done, notably, by voting a pretty considerable sum destined for distribution in the shape of bounties to aid draining operations.
—In France one of the last trials of the system which has been made on a large scale, was the vote of the constituent assembly, in 1848, of a sum of three million frames to aid the formation of workmen's associations. There was no question then of redressing an injury, the result of former legislative blunders, but a sacrifice to a then dominant prejudice, this sacrifice could not have and had not any but trifling results; therefore we merely remind the reader of it. More recently still, the state was at some expense, which it undertook, however, more circumspectly than it had formerly done, in aiding the establishment of superannuation funds for workmen.
—To sum up: the bounties given by government have rarely been productive of the good effects hoped for by their projectors; they have sometimes hindered the progress of industry and have seldom stimulated it efficiently. Their usefulness and expediency in certain exceptional cases may, however, be admitted. In equity they are only justifiable when they are a species of reparation for an injury formerly done; for otherwise they are a sacrifice unjustly imposed on the tax payers for the benefit of a few. In public economy they are equally unjustifiable except as a sort of makeshift to correct in certain cases the imperfections of the laws.
[1.]By an act of the first year of the reign of William and Mary (1689) there was given a bounty or gratuity of three shillings per quarter of grain exported. The amount of bounty was, as may be surmised, very variable according to the year. We are making a very low estimate here in giving it an average of only £20,000. In 1748 and in 1749 it exceeded £200,000, and in 1750 it reached no less than £323,405.
[2.]The subsidies which savings banks received in France on their commencement were given by wealthy private individuals rather than by the government, which at first did little more than sanction them, although it afterward took upon itself the task of directing them when they had no longer any need of its help. But this fact does not seem to us to alter the correctness of our conclusions.