§ 2. However the above question, as to the ultimate balance of gain or loss, should be decided, there can be no doubt that many persons find the present amount of uncertainty in some of the affairs of life greater than suits their taste. How are they to diminish it? Something of course may be done, as regards the individual cases, by prudence and foresight. Our houses may be built with a view not to take fire so readily, or precautions may be taken that there shall be fire-engines at hand. In the warding off of death from disease and accident, something may be done by every one who chooses to live prudently. Precautions of the above kind, however, do not introduce any questions of Probability. These latter considerations only come in when we begin to invoke the regularity of the average to save us from the irregularities of the details. We cannot, it is true, remove the uncertainty in itself, but we can so act that the consequences of that uncertainty shall be less to us, or to those in whom we are interested. Take the case of Life Insurance. A professional man who has nothing but the income he earns to depend upon, knows that the whole of that income may vanish in a moment by his death. This is a state of things which he cannot prevent; and if he were the only one in such a position, or were unable or unwilling to combine with his fellow-men, there would be nothing more to be done in the matter except to live within his income as much as possible, and so leave a margin of savings.
§ 3. There is however an easy mode of escape for him. All that he has to do is to agree with a number of others, who are in the same position as himself, to make up, so to say, a common purse. They may resolve that those of their number who live to work beyond the average length of life shall contribute to support the families of those who die earlier. If a few only concurred in such a resolution they would not gain very much, for they would still be removed by but a slight step from that uncertainty which they are seeking to escape. What is essential is that a considerable number should thus combine so as to get the benefit of that comparative regularity which the average, as is well known, almost always tends to exhibit.
§ 4. The above simple considerations really contain the essence of all insurance. Such points as the fact that the agreement for indemnity extends only to a certain definite sum of money; and that instead of calling for an occasional general contribution at the time of the death of each member they substitute a fixed annual premium, out of the proceeds of which the payment is to be made, are merely accidents of convenience and arrangement. Insurance is simply equivalent to a mutual contract amongst those who dread the consequences of the uncertainty of their life or employment, that they will employ the aggregate regularity to neutralize as far as possible the individual irregularity. They know that for every one who gains by such a contract another will lose as much; or if one gains a great deal many must have lost a little. They know also that hardly any of their number can expect to find the arrangement a ‘fair’ one, in the sense that they just get back again what they have paid in premiums, after deducting the necessary expenses of management; but they deliberately prefer this state of things. They consist of a body of persons who think it decidedly better to leave behind them a comparatively fixed fortune, rather than one which is extremely uncertain in amount; although they are perfectly aware that, owing to the unavoidable expenses of managing the affairs of such a society, the comparatively fixed sum, so to be left, will be a trifle less than the average fortunes which would have been left had no such system of insurance been adopted.
As this is not a regular treatise upon Insurance no more need be said upon the exact nature of such societies, beyond pointing out that they are of various different kinds. Sometimes they really are what we have compared them with, viz.
mutual agreements amongst a group of persons to make up each other's losses to a certain extent. Into this category fall the Mutual Insurance Societies, Benefit Societies, Trades Unions (in respect of some of their functions), together with innumerable other societies which go by various names. Sometimes they are companies worked by proprietors or shareholders for a profit, like any other industrial enterprise. This is the case, I believe, with the majority of the ordinary Life Insurance Societies. Sometimes, again, it is the State which undertakes the management, as in the case of our Post Office Insurance business.
§ 5. It is clear that there is no necessary limit to the range of application of this principle.[1] It is quite conceivable that the majority of the inhabitants of some nation might be so enamoured of security that they should devise a grand insurance society to cover almost every concern in life. They could not indeed abolish uncertainty, for the conditions of life are very far from permitting this, but they could without much difficulty get rid of the worst of the consequences of it. They might determine to insure not merely their lives, houses, ships, and other things in respect of which sudden and total loss is possible, but also to insure their business; in the sense of avoiding not only bankruptcy, but even casual bad years, on the same principle of commutation. Unfamiliar as such an aim may appear when introduced in this language, it is nevertheless one which under a name of suspicious import to the conservative classes has had a good deal of attention directed to it. It is really scarcely anything else than Communism, which might indeed be defined as a universal and compulsory[2] insurance society which is to take account of all departments of business, and, in some at least of its forms, to invade the province of social and domestic life as well.
Although nothing so comprehensive as this is likely to be practically carried out on any very large scale, it deserves notice that the principle itself is steadily spreading in every direction in matters of detail. It is, for instance, the great complaint against Trades Unions that they too often seek to secure these results in respect of the equalization of the workmen's wages, thus insuring to some degree against incompetence, as they rightly and wisely do against illness and loss of work. Again, there is the Tradesman's Mutual Protection Society, which insures against the occasional loss entailed by the necessity of having to conduct prosecutions at law. There are societies in many towns for the prosecution of petty thefts, with the object of escaping the same uncertain and perhaps serious loss. Amongst instances of insurance for the people rather than by them, there is of course the giant example of the English Poor Law, in which the resemblance to an initial Communistic system becomes very marked. The poor are insured against loss of work arising not only from illness and old age, but from any cause except wilful idleness. They do not, it is true, pay the whole premium, but since they mostly bear some portion of the burden of municipal and county taxation they must certainly be considered as paying a part of the premium. In some branches also of the public and private services the system is adopted of deducting a percentage from the wage or salary, for the purpose of a semi-compulsory insurance against death, illness or superannuation.
§ 6. Closely connected with Insurance, as an application of Probability, though of course by contrast, stands Gambling. Though we cannot, in strictness, term either of these practices the converse of the other, it seems nevertheless correct to say that they spring from opposite mental tendencies. Some persons, as has been said, find life too monotonous for their taste, or rather the region of what can be predicted with certainty is too large and predominant in their estimation. They can easily adopt two courses for securing the changes they desire. They may, for one thing, aggravate and intensify the results of events which are comparatively incapable of prevision, these events not being in themselves of sufficient importance to excite any strong emotions. The most obvious way of doing this is by betting upon them. Or again, they may invent games or other pursuits, the individual contingencies of which are entirely removed from all possible human prevision, and then make heavy money consequences depend upon these contingencies. This is gambling proper, carried on mostly by means of cards and dice and the roulette.
The gambling spirit, as we have said, seeks for the excitement of uncertainty and variety. When therefore people make a long continued practice of playing, especially if the stakes for which they play are moderate in comparison with their fortune, this uncertainty from the nature of the case begins to diminish. The thoroughly practised gambler, if he possesses more than usual skill (in games where skill counts for something), must be regarded as a man following a profession, though a profession for the most part of a risky and exciting kind, to say nothing of its ignoble and often dishonest character. If, on the other hand, his skill is below the average, or the game is one in which skill does not tell and the odds are slightly in favour of his antagonist, as in the gaming tables, one light in which he can be regarded is that of a man who is following a favourite amusement; if this amusement involves a constant annual outlay on his part, that is nothing more than what has to be said of most other amusements.
§ 7. We cannot, of course, give such a rational explanation as the above in every case. There are plenty of novices, and plenty of fanatics, who go on steadily losing in the full conviction that they will eventually come out winners. But it is hard to believe that such ignorance, or such intellectual twist, can really be so widely prevalent as would be requisite to constitute them the rule rather than the exception. There must surely be some very general impulse which is gratified by such resources, and it is not easy to see what else this can be than a love of that variety and consequent excitement which can only be found in perfection where exact prevision is impossible.