his wants. The work that he undertakes is to find the wages that are agreeable to the nature (naturgemäss) and to the destiny of man.

2. While the classical economists regarded solely the operation of natural law, Thünen considers the equity in He believes that natural wages exist in the isolated state when these two conditions are realized, (a) when the laborer receives the same income from his surplus when that surplus is placed at interest as the capitalproducer receives from his surplus when that surplus is embodied in a marginal farm; (b) when the laborer receives the maximum income from his surplus.* Here Thünen makes a crude attempt to find an equitable basis for the division of the product of labor between the laborers and the owners of capital invested in concrete forms.

3. While the classical economists considered only the requirements of the laborer as limited by his surroundings, and disregarded the product of labor, Thünen holds that there can be no scientific theory of wages that does not make wages depend upon product. The fundamental idea in the formula Vap is that wages must vary with the product.

A scientific theory of natural wages must regard the laborer as a man, consider the rights of the laborer and of the capitalist, and make the wages of the laborer depend upon his product.

JOHNS HOPKINS UNIVERSITY.

H. L. MOORE.

These two characteristics of natural wages are definitely stated, p. 204.

RISK AS AN ECONOMIC FACTOR.

THE word risk has acquired no technical meaning in ' economics, but signifies here as elsewhere chance of damage or loss. The fortuitous element is the distinguishing characteristic of a risk. If there is any uncertainty whether or not the performance of a given act will produce a harmful result, the performance of that act is the assumption of a risk. It is obvious that risks may vary in the degree of danger which is present between absolute certainty of harm as one limit and almost absolute certainty of security as the other limit. If one were to jump from a precipice at a great height, he could not be said to take a risk. His destruction would be certain. On the other hand, it is doubtful whether there is any such thing as absolute certainty. Neither life nor possessions are ever removed from all possible peril. Even when it is certain that an unfavorable event will happen, a risk may exist, because the time of the occurrence is uncertain. Death is a certainty for all, but the time of death is among the greatest of uncertainties. Again, the fortuitous element may be one of degree. It may be certain that an injury will be wrought by a certain force or action, while it is uncertain how much injury will be done.

Mangoldt, who, so far as I know, is the only writer who has attempted to distinguish economic risks from other risks, says that a distinction must be made between mere irregularities (Unregelmässigkeiten) of results and economic risks. The champagne-maker, for instance, must reckon that a greater or less number of bottles will break. Very true; but, if there is an uncertainty how many will break, there is a risk, and why it should be excluded from economic risks I cannot see. There is no occasion for '

* Die Lehre vom Unternehmergewinn, von Dr. H. von Mangoldt, p. 82.

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any distinction between risks which are economic and those which are not. Every risk to a human being comes within the scope of economics.

Risk is universal. Life and happiness are perpetually hazarded. The dangers of death of supporter, fire, hail, earthquake, failure of crops, diseases of persons and stock, accidents to persons and property, bankruptcies, panics, deterioration and unprofitable sale of property, are, to a certain extent, unavoidable. Be as careful as we may, the very air we breathe may be freighted with disease 1 germs. We abide in a perpetual state of risk. To escape from one peril is only to encounter another. There is, then, a certain minimum amount of risks which a person must bear. There is a class of risks of which we cannot say that they are "assumed."

The owner of wealth must, if he is rational, invest it in some productive enterprise, unless, under the circumstances, he decides to consume it; and, wherever it is invested, there will be some risk that part of it will be lost by the dishonesty of others, the deterioration in value of the property in which it is embodied, or in a change of value of the standard of deferred payment. If he thinks to escape by hoarding it in the shape of specie, robbery is to be feared, to say nothing of the opportunities of gain which are given up. If he decides to consume the wealth at once, he runs the risk of coming to poverty.

We may, however, assume that, by investing his money in government bonds or some other extremely safe security, he reduces the risk to which his property is subjected to a minimum. For taking this minimum of risk, he can obtain no compensation. So of the risks to life and health. The safest possible productive activity is carried on under circumstances of some danger, but the risk is no greater in some kinds of employment than would be the risk of not engaging in productive activities

at all. A workman could obtain no reward for incurring these risks. Neither he nor the capitalist can get compensation, from the fact that he is subject to those risks which are necessary and inseparable conditions, not only of all production, but of all human life and property. Nor could this minimum of risk hinder a man from investing his capital or devoting his labor to production, for to desist from such action would only bring upon him a more undesirable result.

By this is not meant that the harmful events, of which there is even a minimum of danger, do not affect production, nor that accidents do not modify the actual distribution of the products of industry, but that the risk does not do this. Harmful events are to be carefully distinguished from risks. It is true that the elimination of even the minimum of risk would be a great gain to society, because risk could not be eliminated without eliminating the injuries. It is seen, on careful analysis, that it is the elimination of the events, not of the risks of the events, that would be beneficial. We may then assume a theoretical minimum of risk to which all property and all life are at a given time subject. These risks we will denominate ineffective risks, because they can have no effect on production or distribution.

Above this margin there are all degrees of risk both to wealth and persons which we may designate as effective risks. Of these risks it can be correctly said that they are "assumed," and in a perfectly rational society they will be assumed only when some reward is expected and in general given for their assumption. In discussing risks as affecting distribution, it is this kind of risks, and this kind only, which will demand our consideration. Among ineffective risks are those which society, as a whole, must assume. The passage of a tariff bill will affect in some degree every person in our country, by adding to or subtracting from the general prosperity. So far, its passage

imposes an ineffective risk; but, if it especially endanger particular kinds of business, it enters in as one of the effective risks to which those businesses are subject. Professor H. C. Adams attributes the high profits made by manufacturers of certain lines of goods in the United States to the fact that the risk of tariff legislation prevents other capital from entering these lines of business.

All risks may be divided into static risks and dynamic risks. Static risks are those risks which would be found in a stationary state of society. Among them are those due to natural causes, such as damage by lightning, hail, earthquake, storms, disease, and many others. Risks arising from ignorance are a large class, which includes many fires, bankruptcies, sicknesses, accidents, early deaths, and failures in business from misdirected effort. Carelessness is closely akin to ignorance as a cause of damage. Lack of moral character gives rise to a class of risks known by insurance men as moral hazards. The most familiar example of this class of risks is the danger of incendiary fires. Dishonest failures, bad debts, etc. would fall in this class, as well as all forms of danger from the criminal classes. When these risks are spoken of as static, it is not meant that dynamic changes cannot modify them. Such is not the case. The invention of the electric light was a dynamic change which has modified the danger of damage by fire. Nevertheless, we may legitimately use the word "static," because, even in a stationary state of society, we should expect risks of the same essential kind. The amount of loss coming from static risks is incapable of calculation, but is certainly very great. The losses direct and indirect by fire alone are estimated by Mr. Edward Atkinson at $250,000,000 for the United States in 1893. Other risks may be called dynamic, because they are risks of damage which may be directly due to dynamic changes. These are chiefly of two kinds, the first

* Lectures at Johns Hopkins University, 1894.