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United States Supreme Court, which has held that competition of railways at one point might constitute a dissimilar circumstance justifying a lower charge for the longer haul.

(2) As to publicity of accounts: The carriers are required to report to the Interstate Commerce Commission regarding their finances and traffic. The Commission has access to the records and may prescribe the form in which they shall be kept.

(3) As to combinations: It is unlawful for railways to enter into an agreement for the pooling of freights or earnings. Agreements to maintain freight rates are also unlawful as coming under the Anti-Trust Act of 1890 which prohibits "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations."

(4) As to safety appliances: Carriers must equip their cars with automatic couplers, train brakes, grab irons and hand holds. The law does not require the introduction of block signal systems.

The Work of the Interstate Commerce Commission. - Since its creation in 1887 the Interstate Commerce Commission has done much good work in promoting an understanding of the relations between the public and the railways, but in the actual removal of abuses its powers proved utterly inadequate. As a result of a wave of popular indignation, Congress in 1906 extended the Commission's power of investigation and increased somewhat its power over rates. Nothing, however, was done to give definiteness to the long and short haul provision, nor were steps taken to settle the fundamental question of the level of rates.

QUESTIONS AND EXERCISES

1. Write a description of some railway system, giving its organization, capitalization, earnings, dividends, nature of traffic and territory covered, etc. 2. Make a digest of the opinions in the Northern Securities case, 193 U.S. 197.

3. If you have paid $200 for a share of stock in a monopolistic enterprise, have you a right to complain if government regulation so affects its earnings, that the price of the share falls to $100?

4. Should the large shipper get lower rates than the small shipper?

5. Compare the powers of the Interstate Commerce Commission with those of the Canadian Commission.

REFERENCES

ACWORTH, W. M. Elements of Railway Economics, Chaps. I and II. (Not favorable to cost theory.)

"American Waterways." (Twenty articles on various phases of the subject.) Annals of the American Academy of Political and Social Science, January, 1908, Vol. XXXI.

DEWSNUP, E. R. (Editor). Railway Organization and Working. (Descriptive.)

Hearings before the Committee on Interstate Commerce, United States Senate, 1905-6 (including Digest). Digest, pp. 57-75; and Vol. III, pp. 2310 to 2360.

Interstate Commerce Commission, Annual Reports, Decisions, and Statistics of Railways in the United States.

JOHNSON, E. R. American Railway Transportation, and Ocean and Inland Water Transportation. (Elementary Text-books.)

MCPHERSON, L. G. The Working of the Railroads, Chap. III.

MERRITT, A. N. Federal Regulation of Railway Rates.

MEYER, B. H. Railway Legislation in the United States, Part II; also "History of the Northern Securities Case," Bulletins of the University of Wisconsin, No. 142.

MEYER, H. R. Government Regulation of Railway Rates. (Severely critical of the work of government officials.)

Munn vs. Illinois, 94 U.S. 113.

NOYES, W. C. American Railroad Rates, Chap. IV.

RIPLEY, W. Z. Railway Problems. (A collection of supplementary reading.) "Railroad Valuation," Political Science Quarterly, December, 1907, Vol. XXII.

United States vs. Trans-Missouri Freight Association, 166 U.S. 290.

WEBB. Economics of Railroad Construction, Part I.

CHAPTER XXVIII

INSURANCE

Nature of Insurance. The essential idea of the modern institution of insurance is coöperation in the bearing of losses which are likely to happen to any one of a large group of persons but which will actually fall upon but few members of the group. It is thus directly opposed to gambling, although wagers have frequently been made in the form of the insurance contract. It may appear at first that the man who insures his house is making a wager with the insurance company that his house will burn, but this is in fact like betting on both sides of an event. If the man does not insure, he may be regarded as betting that his house will not burn, and by wagering with the insurance company that it will burn, he relieves himself of risk. For this relief he is willing to incur the certain loss of his premium. Insurance means certain loss for the policy holders, but it implies many small losses in place of a few unbearable ones. In well-developed forms of insurance there is also no risk for the insurance company because the amount of loss is approximately known in advance, as will be explained presently.

The question is sometimes asked whether insurance is productive in the sense that other economic activities are productive. The answer is decidedly in the affirmative, for the feeling of security that it makes possible is a real satisfaction which we are willing to purchase. Furthermore, the relief of distress among the unfortunate without compelling them to accept charity is a distinct social gain, and finally, many of our business operations are facilitated by the existence of a system of insurance. Prevention of loss is not properly a part of the idea of insurance, but nevertheless, insurance as it exists to-day does have many tendencies in that direction, especially in such forms as fire and steam-boiler

insurance. On the other hand, insurance causes a certain amount of loss by provoking to some extent incendiarism, self-mutilation, or suicide, and even normal persons are likely to be less careful when they know they are insured. On the whole, however, we can scarcely overestimate the importance to society of an institution which equalizes the shocks and multiplies the incentives to thrift and wholesome economic activity.

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The Law of Probabilities. A special profession (that of the actuary) and a special branch of mathematics have grown up as a basis of the institution of insurance. It is a knowledge of the law of large numbers that changes the insurance business from a wager to a legitimate business. If a coin is tossed a large number of times, heads will appear about as often as tails. This may be counted upon as practically certain, but with respect to any particular throw taken by itself, there is no way of telling in advance whether heads or tails will appear. This truth has been worked out and applied most definitely to life insurance, but in other branches also an effort is made to gather sufficient data that will make possible the formulation of statistical laws as a guide for future business.

Origin and Development. - Arrangements embodying the idea of insurance are found among the ancients, but the modern institution of insurance, although its origin is obscure, first becomes prominent in the loans on bottomry which became common during the thirteenth and fourteenth centuries. A loan on bottomry meant that money was borrowed by the owner of a ship and was to be repaid with interest at the termination of the voyage, but the principal and interest were not to be repaid if the ship was lost. Sometimes this took the form of insuring the captain's life, but no scientific system of life insurance appeared until the compilation of life tables.

Fire insurance received an impetus from the Great Fire of London in 1666, the first company organized upon strict mercantile principles being the Fire Office, organized in 1680. It had a brigade of its own to prevent and extinguish fires. In 1693 Edmund Halley made a report to the Royal Society regarding the mortality at various ages upon the basis of tables of births

and funerals at the city of Breslau, but practically, life insurance as a business dates from the organization of the "Old Equitable" in 1762.

Before this, however, there were many associations for conducting insurance upon a speculative basis, which entered into wagers of every conceivable description. "Even the morality of the newspapers of that day was shocked by such proceedings: we find the London Chronicle of 1768 thus declaiming, 'The introduction and amazing progress of illicit gaming at Lloyd's Coffee-house is, among others, a powerful and very melancholy proof of the degeneracy of the time. Though gaming in any degree is perverting the original and useful design of that Coffee-house, it may in some measure be excusable to speculate on the following subjects:— Mr. Wilkes being elected member for London; which was done from 5 to 50 guineas per cent.; Mr. Wilkes being elected member for Middlesex, from 20 to 70 guineas per cent; — Alderman Bond's life for one year, now doing at 7 per cent; -On Sir J. H. [mark the modesty] being turned out in one year, now doing at 12 guineas per cent; - On John Wilkes' life for one year, now doing at five per cent. N.B. - Warranted to remain in prison during that period; On a declaration of war with France or Spain in one year, 8 guineas per cent. But,' continues the sensitive journalist, 'when policies come to be opened on two of the first peers in Britain losing their heads at 10s. 6d. per cent. or on the dissolution of the present parliament within one year at 5 guineas per cent., which are now actually doing, and underwritten chiefly by Scotsmen, at the above Coffee-house, it is surely high time to interfere.' """1

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In the United States, fire insurance was fairly well begun even in pre-revolutionary days. In 1830 was organized the New York Life and Trust Company, and twelve years later appeared the Mutual Life Insurance Company of New York, which is the oldest of the existing life insurance companies which insure more than a restricted class of individuals. Tables I and II show the growth of life, fire, and marine insurance in the United States. A decline in the number and importance of life companies appears in the seventies. The numerous failures of this period brought the "old line" life insurance into discredit, and in the following years this fact, together with the desire for cheap insurance, caused a marked development of assessment insurance, against which there has in turn been a reaction because of its unscientific basis. Recently the "old line" companies have again suffered a loss of 'Walford, The Insurance Guide and Handbook, 4th ed., p. 27.

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