of the worker. May I be permitted to say in passing, that I believe that the Federal reserve currency plan now in force has already proven, and will prove in the future, to be an exceedingly important factor in preventing, or at least diminishing, commercial crises, commonly called "hard times." Owing to their immensely greater numbers, the working classes consume by far the greater part of the products of all the industries, and when this consuming capacity is diminished by the unemployment of any considerable part of the laboring classes, by an industrial crisis, such crisis is thereby aggravated. If only purchasing power for the necessaries of life, such as food and fuel, were maintained, it would go a long way to lessen all industrial crises, although, of course, we all recognize that there are many other contributory factors which must be eliminated before their recurrence can be completely prevented.

Unemployment insurance would also operate as a direct preventive of unemployment, because it would be a direct financial inducement to the employer to furnish regular work. In the English unemployment insurance system there is provision made for a marked reduction of the amount of contribution required from the employer if he furnishes regular employment to his workmen throughout the year, and this reward should be a part of every unemployment insurance system. The preventive effect of unemployment insurance will be comparable to that in favor of accident prevention, caused by workmen's compensation insurance.

When we come to consider whether we should choose the voluntary form, or the compulsory form, of unemployment insurance in the United States, we find that practically nothing has been done in unemployment insurance by voluntary methods, excepting through the labor unions. This is a very important and beneficial branch of their work, but it, of course, is impossible for them to aid those outside their membership, and this membership is only a small per cent of all workers. So far as I know there is no hope in any quarter that, outside of labor unions, unemployment insurance would or could be made successful on the voluntary plan. The only alternative is compulsory unemployment insurance. If this is adopted, it must be carried on by the state or United States, for two reasons. First, in order to avoid the excessive and unreasonable expense of all

insurance by commercial methods, and in the second place, because the only hope of making unemployment insurance a success is, as heretofore explained, by having it carried on as the integral part of a nation-wide system of labor exchanges or agencies.

As the result of investigation into the subject of fire insurance which I began in 1914, I have arrived at the conclusion as stated in my report on that subject, that on account of the excessive expense incident to the present method of conducting the fire insurance business, and particularly owing to the existence of a nation-wide fire insurance combine, or trust, of the most oppressive kind, which controls practically all of the fire insurance business of the United States and enforces exorbitant rates everywhere, the fire insurance business should be conducted by the different states or by the United States. The fire insurance combine is able to do this, because under modern commercial and industrial conditions where business is largely done on credit, fire insurance is compulsory; practically as much so as if required by statute. This fact enables the trust to enforce its exactions. The same thing would happen if unemployment insurance was made compulsory, but conducted by commercial interests, and the same reasons require that unemployment insurance should be carried on by the state or United States as a part of the general system of welfare insurance. I believe there would be little hope of successful unemployment insurance unless it was carried on by the United States. course, there will be strenuous objections from the financial and insurance interests to this being done as well as to any other form of state insurance, but these objections are entirely selfish in their origin and entitled to little consideration from those who have the welfare of the nation and its workers really at heart.

Of

In any plan of unemployment insurance, particular attention should be given to prevention of fraud and imposition, and also to prevent the steady workers from being taxed to support the idle and thriftless. This can be effectually accomplished by proper provisions and careful administration.

I am certain that by careful study aided by experience, a plan of unemployment insurance can be worked out which will be just and beneficial to both employers and employees, and of immense advantage to the community in general.

INSURANCE AGAINST UNEMPLOYMENT 1

The ideal of security may not at first sight seem a very heroic aim to put before a country whose economic traditions form a veritable romance of adventure full of the joy of risks encountered and dangers overcome. Some may think with misgiving that the conscious pursuit of a policy of safety implies that we have passed the stage of economic youth and expansion and are entering on the dusk of old age. They may feel as when at Rome we contemplate Aurelian's great wall which for centuries withstood the inroads of barbarians, but the building of which none the less marked the definite close of the period of the fearless and aggressive supremacy of Rome. Are the nations of Europe being invited to enter with the old gods into the fortress of Valhalla, there to await in well-planned security but in growing gloom their inevitable decline? The question is cogent and searching, and modern nations must find the true answer at their peril, for if the two ideals of free adventure and economic security admit of no reconciliation, then the fate of our civilization is only a matter of time.

But fortunately it is not necessary to admit the essential opposition of these two ideals rightly conceived. For as it seems to me there is a noble as well as an ignoble ideal of security, and the great problem that lies before us in the future is to distinguish rightly between them and to direct our national policy accordingly.

The first step toward making this distinction is to recognise that ignoble as well as noble results are produced by exposure of risks. If fearless resolution and foresight in encountering and combating danger and risk produced the race of Elizabethan mariners and explorers, and today gives us a Shackleton or a Sven Hedin, we know also the craven and panic-stricken population which lives on the slopes of a volcano, exposed every day to incalculable risks against which no precautions can avail.

It is, I think, a definite induction from history and observation that when risk falls outside certain limits as regards magnitude and calculability, when in short it becomes what I may call a gambler's risk, exposure thereto not only ceases to act

1 From address by Sir H. Llewellyn Smith, K.C.B., M.A.. B.Sc., F.S.S., President of the Section, to the Economic Science and Statistics Section of the British Association for the Advancement of Science. Journal of the Institute of Actuaries. 14: 511-18. October, 1910.

as a bracing tonic, but produces evil effects of a very serious kind.

It is to the general interest, and it tends to the building up and strengthening of the national character, that everyone should have as strong a motive as possible to guard against risks which can be avoided by reasonable precautions on the part of the individual, and it is also to the general interest that within certain limits the individual should have sufficient resisting power and reserve strength to encounter without the support of his fellows the ordinary minor ups and downs of life which it is not within his power to avoid. What these limits are cannot be laid down dogmatically: they vary widely from nation to nation, from class to class, and from age to age. Vicissitudes which mean famine to the savage pass quite unnoticed in advanced industrial communities, and classes who are accustomed to yearly salaries are unconcerned with fluctuations which bring privation to the weekly wage-earner. But within any given nation and class the limits probably change but slowly, and though different schools of social observers will certainly fix the limits at somewhat different points, and there is no doubt a neutral zone within which the relative public advantages and disadvantages of exposure to risk are fairly equally balanced, or at least may be open to legitimate debate. I am disposed to think that the majority of fair-minded men would not differ very widely in the principles governing the demarcation between the spheres of individual and of social protection against economic risk. To take, for example, the risks of unemployment, I think most people would agree that the personal risk of losing employment through bad work, irregular attendance, or drunken habits is one which it is absolutely necessary in the public interest to leave attached in all its force to the individual workman. For the community to guarantee employment to all irrespective of personal effort or efficiency would necessarily impair the national character and lower the national standard. This is, therefore, a risk the direct incidence of which must be borne by the individual, the action of the community being confined to such indirect measures as may strengthen the power of the individual to meet the risk, as, for example, by technical and general training.

On the other hand I think that most people would agree that in a country like the United Kingdom at the present time, the

incalculable risk of a prolonged depression of trade, due perhaps to some financial catastrophe thousands of miles away, is one the exposure to which of the individual workman does little but harm. Such a risk is too much beyond his powers of foresight, and also too great in magnitude in proportion to his reasonable opportunities of making provision, to exercise any appreciable effect in stimulating self-help, while the liability to see all his savings swept away in a few weeks by cyclical fluctuations in employment which he can do nothing to avoid is a demoralising risk acting on his character precisely like the liability to earthquake or other cataclysm, and discouraging to a marked extent the accumulation of savings and the development and maintenance of habits of providence.

Between these two extremes, the risk due to personal inefficiency and that resulting from a world-wide depression of trade, lie intermediate classes of risks about which there might be more difference of opinion, and the incidence of which probably acts on national character in very different ways in countries at different stages of development.

I propose presently to examine more closely some of these classes of risks. At the moment, however, I am only concerned to illustrate my general proposition that neither free adventure nor economic security suffices singly as an ideal of economic conduct without careful discrimination, and that the criterion for such discrimination is the effect of exposure to each class of risk in building up or degrading the national character.

The crucial question from a practical point of view is, therefore, whether it is possible to devise a scheme of insurance which, while nominally covering unemployment due to all causes other than those which can be definitely excluded, shall automatically discriminate as between the classes of unemployment for which insurance is or is not an appropriate remedy.

We can advance a step toward answering this crucial question by enumerating some of the essential characteristics of any unemployment insurance scheme which seem to follow directly or by necessary implication from the conditions of the problem as here laid down.

I. The scheme must be compulsory; otherwise the bad personal risks against which we must always be on our guard would be certain to predominate.

2. The scheme must be contributory, for only by exacting