whole classes of risks alarmingly increased by new chemical combinations which follow each other as rapidly as the changes of a kaleidoscope, he should know not less of them all than does the chemist himself. In short, there is scarcely a science, art, or manufacture with which he should not be more or less familiar, and if the successful conduct of any one business or calling requires a lifetime of study and application, how much more should the business of insurance -which demands a knowledge more or less intimate of every other-require lifelong study and the closest and most constant observation." Facts like these serve to show the importance of having a specialized business for the assumption of the risks of the many producers who are ignorant of the relative fire hazard connected with different types of property. Moreover, the natural ability of the insurers will be constantly developed through the experience and training which their work will give.

3. Insurance also serves a very useful purpose in increasing the efficiency of men by enabling them to venture more willingly. As early as 1601 the British Parliament (43 Elizabeth, C. 12) gave expression to this advantage of insurance by describing marine insurance as a means "whereby it cometh to pass that upon the loss or perishing of any ship there followeth not the undoing of any one, but the loss lighteth rather easily upon many than heavily upon few, and rather upon them that adventure not, than upon those who do adventure; whereby all merchants, especially those of the younger sort, are allowed to venture more willingly and freely."

There are many men, who, while capable of engaging in comparatively safe industries, would have their efficiency in business seriously curtailed, if compelled to gamble with the chance of loss through the elements. By being able to transfer these risks of loss to insurance companies for a definite stipulated premium they are relieved from the paralyzing

anxiety which results from uncertainty, and are free to direct their energies along other lines. The value of insurance to the individual property owner, who does not wish to gamble with chance, consists in the diffusion of one individual's loss over a large group of individuals. Insurance takes a loss, sufficiently heavy to ruin one property owner, and by distributing it over thousands of others, who pay premiums to the same company, makes the loss but lightly felt. The losses resulting from the Chicago, Boston, Baltimore, and San Francisco conflagrations would have had a paralyzing influence upon those communities for years if there had been no certain method of indemnifying the losers. But the property owners of these cities carried insurance in scores of companies, situated in nearly every leading country, and representing millions of policy holders in all parts of the world, whose contributions in the form of premiums at once became available for the rebuilding of these cities. Fire insurance "is closely and inseparably interwoven with every scheme of profit and trade, a strong, continuous warp-thread which lends security to the fabric, and without which it is doubtful if the temerity of the capitalists would meet the necessities of the poorer population for employment.

4. But fire insurance plays another very important rôle, besides those already enumerated. It is the support of commerce and industry in so far that it is the basis of our whole credit system. The importance of insurance in this respect becomes apparent when we reflect that it is estimated that only about 5 per cent of the world's business is conducted on a cash basis, and that 95 per cent is based on credit.

A thousand illustrations can be cited to show the farreaching influence of fire and marine insurance upon our credit system. A cargo of grain is shipped from the United States to Europe, and is paid for through the shipment of

1F. C. Moore, "Fire Insurance and How to Build," p. 21.

a cargo of manufactures from Europe to America. Here we have a transaction based on credit and consummated without the use of cash. Commodities are used to pay for commodities, and, owing to the costliness of settling international debts by the actual transfer of gold from one country to another, this practice is almost invariably adopted. The whole transaction is based on credit, and the important thing to remember is that the foreign exchange banker, who undertakes the financial settlement of these two shipments, knows that this credit is guaranteed by a fire and marine insurance policy. The insurance of these cargoes in reliable companies made the transaction as certain as though all payments were made in cash. If the property involved in any of these shipments had been destroyed by fire or by the perils of the sea, the creditors would nevertheless be protected, since the loss would be made good by the insurance companies.

Without fire insurance as collateral security the wholesale merchant could not extend credit to the retailer. But with the goods insured in a reliable company against loss by fire, the wholesale merchant can grant an able and honest retailer credit to the extent of five times his capital, and at the same price he would demand if paid cash. Because of the protection promised by an insurance company the wholesaler advances the goods to the retailer. He knows the retailer to be honest and able, and that when the goods are sold he will receive his payment out of the proceeds of the sale. The only risk is the danger of destruction of the goods before the retailer has sold them, thus probably making their payment impossible. Through insurance this risk is eliminated, and the retailer becomes a cash trader, as far as the securing of favorable terms from the wholesaler is concerned.

In the same way, the wholesaler, if he is operating on borrowed money, can secure the most favorable rate from the lender of credit, if he protects his banker or the manufacturer of the goods with an insurance policy. In buying the

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than A 149,900 capital. With this capital he pikaea wint in the West at $1 a bushel, with a view to welling it in the Fast, or toring it in a warehouse for a more favorable market. If this grain dealer's transactions were limited to cash purchase of wheat, he would probably be obliged to wait several weeks before he could sell his grain and liberate his capital for a new purchase, and his profit would be exceedingly small, since modern competition in that business enables him to realize a profit of only one to two cents per bushel. Grain dealers cannot afford to transnet business on this basis, and all are obliged to resort to the use of credit. Instead of limiting his purchases to 40,000 bushels, our dealer will at once have this wheat inspected, graded, represented by warehouse receipts, and will have it insured against loss by fire in a reliable company. Then he will take the warehouse receipts, representing the wheat, and the insurance policy to his banker as collateral security for a Jonn, and the banker will lend him money, probably, to the

extent of 90 per cent of the value of the wheat, or $36,000. If wheat remains at $1 a bushel, the dealer can at once purchase 36,000 bushels more with the proceeds of this loan. This new purchase of wheat will again be represented by new warehouse receipts, and again protected by a fire-insurance policy, and the warehouse receipts and the policy covering the 36,000 bushels can be offered to the banker as collateral security for a new loan of 90 per cent of the value, or say, $32,400. With this new loan the dealer can at once purchase more wheat, can insure it, and with the new warehouse receipts and the fire-insurance policy as collateral obtain another loan, and with this loan buy more wheat. By repeating the operation until his original capital has been absorbed in margins, it becomes clear that this grain dealer, though he started with only $40,000 capital, is nevertheless enabled, through the use of fire insurance, to do a $300,000 business, and accordingly makes seven or eight times the profit he could realize if his business were restricted to cash transactions. The banker is willing to extend the credit, partly because he knows that wheat always has a ready market on our big produce exchanges, thus in case of a decline in price, giving him a chance to sell the wheat ¦ efore the margin of ten points on the loan is exhausted and partly because the fire-insurance policy protects him against the loss by fire of the security back of his loans. Likewise the exporter of a cargo of cotton may insure it under a marine policy, and with the policy and bill of lading as collateral may at once command money at the usual rate of interest, with which to buy another cargo and repeat the operation.

Insurance also helps to build homes, since the owner of ground who wants to build a home can borrow a larger sum of money on the building, if insured, and at a more favorable rate, than he could if there were no insurance. Mortgagees, as we shall see in another chapter, invariably have their interest in the mortgagor's property protected by an