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.[** TN: space] 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