Chapter XVI. Business Security.
Conservative influences.—We have already seen the influence of governmental organization upon various phases of production; but the chief fostering influence is the general stability of a community, not only in its laws, but in its customs and habits of life. Security in property rights is a chief condition for accumulation of wealth, and a still more necessary condition for industry. Not even want will drive people to industry when there is no certainty of possession when the work is accomplished. The fruits of industry must be safe. While the laws of the country are naturally considered the guardians of rights, the customs and habits of the people, the actual origin of laws, are even more important. Bad habits actually nullify good laws, while bad laws may be made quite endurable by good customs. Thus, the welfare of every community depends upon a conservative social influence, preventing abuse of opportunity for injury and stimulating individual energy.
The rights of life, liberty and property must first be dear to the mass of the people before laws can be framed for their protection. This is especially true in a self-governing people, but is essentially the same in the most absolute tyranny. So the chief safeguard for every kind [pg 225] of business is the honest character of all business men, and such influences as establish good character and sound judgment will be fostered on the simplest business principles. The farmer who sells his grain or his fruit by false samples cannot complain of false weights and measures at the elevator. The one who gloats over victory in a horse trade has no right to grumble at a trickster in wool buying. The man who is caught by the offer of a gold brick is not only foolish, but false, and diminishes the security of himself and everybody else in fair bargains and genuine business. The man who takes advantage of his ignorant neighbor deserves to be at the mercy of a more crafty dealer. Every one who makes a false use of power over a workman beneath him may expect a false use of power from an authority above him. So all business interests, as well as all rights, are secured by the right spirit in all men.
Nature of insurance.—The fundamental activity in accumulation of wealth is foresight; but no foresight can prevent all disasters. Fire, flood, wind and wave are beyond control, because in some sense they are beyond knowledge. Against such forces no foresight can secure. The name insurance is given to every method by which the burden of such unforeseen losses is provided for beforehand and fairly distributed. The average of such losses can easily be estimated by experience. Statistics show a wonderful uniformity in the misfortunes of life as well as, the fortunes. Even though chance be an element in every transaction, the average of chances can be distinctly calculated; and that average is essentially constant among a sufficiently large number of instances.
All are familiar with the application of such calculations in fire insurance. Among ten thousand houses a certain number will be destroyed by fire every year, provided those houses are widely distributed under essentially similar conditions. The ten thousand house owners can insure each owner against entire loss of his house by mutual agreement to meet their share of the total loss. If ten houses are burned, each of the ten thousand house owners will pay one-thousandth part of the total loss, making a burden easily provided for. If at the beginning of the year each has laid aside this sum, the loss will be met when it occurs without disturbing the welfare of any. The machinery for such provision is called an insurance company, and the separate payment of each house owner is the premium or award expressing his share of the provision. This principle of estimating losses and providing a definite way of meeting them is the same in all forms of insurance. It has been recognized for hundreds of years, but only recently has entered into the business life of the world in all directions. For a long time false notions of reverence for the power that wields destiny stood in the way of such distribution of misfortune; but now the mass of people everywhere regard such foresight in united sympathy as natural as the planting of crops.
Various methods of insurance.—Satisfactory insurance rests upon certain definite business principles which every insurer may wisely study. There are various devices for accomplishing the same end. A body of men sufficiently large to make the average of losses uniform may bind themselves by a simple agreement to [pg 227] meet each loss as it occurs. To make this plan satisfactory they will need efficient business men as officers to devise means and methods for making the agreement effectual, for estimating the actual loss in each case, and for distribution of the claim by assessment sufficient to cover the loss and the expense of collections and estimates, as well as the maintenance of the officers. These officers must maintain the business standing of the organization in the community, so that it shall continue for a long series of years to keep its numbers large enough to maintain only the average loss.
This is a simple mutual insurance company, upon the assessment plan. Its weakness lies in the comparatively slight interest taken by each member in the selection of its officers, in the absence of security for the payment of assessments when needed, in the long delay liable to attend collections, and the uncertain interest of the officers in exact adjustment of losses. Such companies are liable to be too small to give a fair average of losses, and in any serious emergency to fail for want of expert business ability and trustworthy character in officers.
If, instead of the assessment after losses, a definite percentage of probable loss is paid in advance, the responsibility for use and maintenance of such funds calls for a business character and ability in the officers which usually secures better results. It especially avoids the danger of slackness and failure on the part of the insurer. It leads to closer scrutiny of actual losses, and helps the insurer to more carefully measure his interest, since he already has an investment in the business. Any [pg 228] overestimate of expected losses may be returned in dividends to the insured, or may be retained as a surplus for security against losses above the average of experience. The only weakness of this method is in the power entrusted to individual officers, elected on the ground of popularity by comparative strangers. Even when a board of directors chosen from well-known business men is added to the machinery, the dangers from incompetent and dishonest management are not avoided. Such directors are too prone to consider their names their only contribution to the welfare of the association.