_Various methods of insurance._-Satisfactory insurance rests upon certain definite business principles which every insurer may wisely study. There are various devices for accomplishing the same end. A body of men sufficiently large to make the average of losses uniform may bind themselves by a simple agreement to meet each loss as it occurs. To make this plan satisfactory they will need efficient business men as officers to devise means and methods for making the agreement effectual, for estimating the actual loss in each case, and for distribution of the claim by a.s.sessment sufficient to cover the loss and the expense of collections and estimates, as well as the maintenance of the officers. These officers must maintain the business standing of the organization in the community, so that it shall continue for a long series of years to keep its numbers large enough to maintain only the average loss.

This is a simple mutual insurance company, upon the a.s.sessment plan. Its weakness lies in the comparatively slight interest taken by each member in the selection of its officers, in the absence of security for the payment of a.s.sessments when needed, in the long delay liable to attend collections, and the uncertain interest of the officers in exact adjustment of losses. Such companies are liable to be too small to give a fair average of losses, and in any serious emergency to fail for want of expert business ability and trustworthy character in officers.

If, instead of the a.s.sessment after losses, a definite percentage of probable loss is paid in advance, the responsibility for use and maintenance of such funds calls for a business character and ability in the officers which usually secures better results. It especially avoids the danger of slackness and failure on the part of the insurer. It leads to closer scrutiny of actual losses, and helps the insurer to more carefully measure his interest, since he already has an investment in the business. Any overestimate of expected losses may be returned in dividends to the insured, or may be retained as a surplus for security against losses above the average of experience. The only weakness of this method is in the power entrusted to individual officers, elected on the ground of popularity by comparative strangers. Even when a board of directors chosen from well-known business men is added to the machinery, the dangers from incompetent and dishonest management are not avoided. Such directors are too p.r.o.ne to consider their names their only contribution to the welfare of the a.s.sociation.

A joint stock company, insuring with definite premium, is likely to bring the best business management, the quickest though not always the fairest adjustment of losses, and the confidence of the business community. Its prosperity, however, is hindered somewhat by the common judgment that the interests of the stockholders must be against the interests of the insured. The actual cheapness of insurance depends not so much upon the amounts paid from time to time as upon the actual quality of the insurance purchased. a.s.sessment companies of all kinds, without a legal lien upon definite property, are decidedly lacking in quality, since their guaranty of payment involves the financial credit of every person insured. No one should be deceived by the promise of insurance at cost, until he knows exactly how genuine that insurance will remain during the period of years for which he desires it.

_Governmental control of insurance._-The essential importance of insurance and the difficulties of providing against fraud and mismanagement have led naturally to government inspection, and in some countries to government control of insurance agencies. The laws of various states provide differently for inspection and reports, and restrict the action of companies in various directions. It is probable that time will develop the necessity of greater uniformity of insurance laws and more definite requirements in the way of published reports and expert inspection. At present, insurance commissioners often have the confidence of neither companies nor people, and no expert knowledge is demanded in the candidate for that office.

The desirability of insurance by government direct is questioned so long as governments themselves are unstable and popular will favors laxity in the business machinery. That insurance could in this way be made cheaper is a matter of doubt while great ma.s.ses of people magnify their claims against government and minify their obligations to it. Frauds against government in both taxes and claims are proverbial. At any rate, governments will not wisely undertake the indefinite applications of insurance until larger experience and wider acquaintance with the methods in vogue are reached.

_Applications of insurance._-The applications of insurance are indefinite in variety. There is no limit to the possibilities except in the lack of experience to settle the average of hardships. Insurance of property against fire and storm is well understood and almost everywhere practiced.

Insurance of life is almost equally extended, in which the head of a family may in a measure provide against the suffering of his family in his unexpected removal by death. This is easily extended into insurance against accident. In this, as in life insurance, there is some lack of experience, as yet, as to the actual cost. It is possible even to insure against dishonesty of employes through so-called bond and security companies, which issue bonds for definite amounts payable in case of failure of the person whose character is insured to meet the expectations of his employer. Such companies, in their own interest, exercise an influence over the character of those for whom they have given bonds by attention to their habits of life and business methods. They make more prominent the maxim, "Honesty is the best policy," whether they actually cultivate honesty in fact or not.

There is no conceivable limit to the possible applications of the principles of insurance. It seems possible that a body of business farmers, subject as they are to so many disasters from weather, insects and contagious diseases of stock and vegetation, might devise methods of equalizing and diminishing the disaster from such losses in a common system of insurance. As a basis for such systematic action, careful statistics for large regions of country are absolutely necessary. With such losses clearly presented and averages fairly estimated, insurance would be just as feasible as it is now against fire. It will be wisely undertaken first upon such matters as can be most definitely measured in dollars and cents. Losses from accidents to teams and other live stock have already been studied and insurance to a limited extent attempted. The difficulties of such insurance are greatly increased by the ease with which owners may contrive to market unsalable stock through a false representation of misfortune. The possibilities, however, of extending the advantages of insurance in a business of this nature are worthy of more careful study.

PART II. DISTRIBUTION OF WEALTH FOR WELFARE.

Chapter XVII. General Principles Of Fair Distribution.

_Wealth distributed, not welfare._-In considering the principles of fair distribution among all the parties contributing to production of wealth, it is necessary to remember that wealth and not welfare is the subject of thought. A child may have equal right to welfare with his father, but cannot in any sense have equal ownership of wealth. The welfare of a complete imbecile may be the care of the state, but he can in no sense control wealth. Distribution of wealth cannot, therefore, include the subjects of charity, but must be confined to a study of the natural relations between individual owners of wealth or individual contributors to production, which make control of a portion of acc.u.mulated wealth essential to individual welfare.

A pound of tea may include in its value the efforts of a hundred different persons. What are the principles upon which those hundred people may be fairly compensated by the actual consumer of the pound of tea? This ill.u.s.trates the complexity of the whole subject of distribution. No drinker of tea would dare to settle the question of fair distribution arbitrarily. No one would even offer a theory by which a perfect settlement could be reached. Yet when the pound of tea is put upon the pantry shelf, the fifty cents paid for it has already been divided into a hundred unequal portions adjusted by some method of custom to meet the ideas of every helper in the long list. Each has had some portion of the wealth produced, though the distribution may have taken place in different countries, under different laws and customs, through a period of months or years. This distribution involves the whole question of industrial freedom, and rests finally upon the principle of equity as applied to ownership of one's powers and the product of those powers. It also involves, to a certain extent, the decision of what is properly wealth and what is properly a part of universal welfare.

The important questions connected with the subject will not be satisfactorily settled until a reasonable adjustment of all claims is reached by the ma.s.ses engaged in production. The modern discussions of the interests of laborers are proof that the world is thinking more and more of individual rights in property, and no sweeping a.s.sertions as to inequity of property rights help to solve the questions. It is because each individual has a distinct equity in what is produced in part by his efforts that there is need of better adjustment. All reforms, therefore, must be along the line of fair distribution, or fail of their end.

_Distribution by exchange._-Ordinary observation shows that distribution is made chiefly in the customary method of exchange. A pound of b.u.t.ter may find its way from the farmer's dairy to the actual consumer in a distant country. In its final value, the consumer compensates the retail dealer for his services in handling it and for advance payments, including every other handler and every other service, down to the boy who drove the cows to pasture. If the system of universal exchanges is free and fair, each has received his fair compensation. In general, then, distribution of wealth is made automatically in the ordinary processes of production, exchange itself being one of the steps by which value to the consumer becomes value also to the producer.

_Fair exchange above laws._-Under perfect freedom of exchange, the general law of supply and demand already ill.u.s.trated is more effective than any laws can be in adjusting wages or profit to efforts in production, and in adjusting interest or rent or both to the capital employed or to other means of production controlled. Any customs or laws which interfere with natural conditions of supply and demand hinder rather than help toward a fair adjustment. In any progressive community such laws will surely fail, for the reason that in making such laws human nature is in conflict with itself. The history of increasing individual welfare in any part of the world gives a story of more ready and free compet.i.tion in open market for all commodities and all services. In perceiving this we must not overlook the fact that fraud and ignorance, as well as arbitrary power, stand opposed to fair exchanges. Nor must we be satisfied with any condition which involves meeting restrictions with restrictions or force with force.

Such conditions must be but temporary.

_Actual and nominal compensation._-In considering compensation for any services, it is necessary to distinguish carefully between the actual compensation in welfare and the nominal compensation in money. A farmer in Nebraska may get a larger return for his labor with corn at 15 cents a bushel than he could in Ma.s.sachusetts with corn at 40 cents a bushel. Just so a wage-earner, receiving $1.50 a day in Ohio, might lose in welfare by exchanging work with his neighbor in New Mexico, who gets $2.50 a day.

This means that $1.50 in Ohio may buy more comfort than $2.50 can buy in New Mexico. This is very important in comparing the wages of different cla.s.ses of workmen in the same country, as well as the wages of similar workmen in different countries. It has an important bearing, too, upon relative profits and interest. The actual compensation in welfare is the natural basis for adjustment in all distribution, and the law of supply and demand rests directly upon this.

_Wages, profits, interest and rent take the product._-It is common to consider distribution as made in the forms of wages for labor given without risk as to the product, profits to the one whose labor is a.s.sociated with risk of loss as well as gain, interest to the one who furnishes capital in any form and waits for his compensation, and rent to the landlord, or owner of estate, whose property is used for a definite time and returned. It is evident that any advantage received in any of these ways, at any time, must come from the actual available goods in store suitable for division and consumption. The farmer cannot pay his hired hand with his farm, though he may be able to do so with his products. The farmer himself cannot realize his profits until he has the proceeds of his work in the shape of consumable goods. So, at any particular time, the total of products fit for consumption makes the source from which all distribution must come. Debts and credits can have no consideration in the total, for the reason that they exactly offset each other. A general conflict of interested persons as to wages, profits, interest or rent comes from the difficulty of sharing in the actual goods at hand. The relation of each to the whole depends upon circ.u.mstances to be discussed in future chapters. It is certain that the larger proportion of daily production goes to the ma.s.s of the people who consume their share from day to day. It is estimated that fully 80 per cent of such wealth is used up by those who contribute no use of capital to the productive force.

It seems probable also that this ratio is increasing rather than diminishing, but no statistics are sufficient to show the exact facts.

_Cheap standards of living._-In the natural compet.i.tion of laborers with each other, the general standard of living-physical, intellectual and moral-have an important bearing. The Chinaman in this country competes with the American upon a wholly different plane of living. His habitual needs being less, he is willing to work for wages that will not tempt the native American. If he can do the same work, living as he does, he necessarily becomes a cheaper force in production, and the American must find a better field for his energies or go without employment. Under ordinary circ.u.mstances, the introduction of laborers able to live more cheaply acts upon the better cla.s.s of laborers exactly like the introduction of labor-saving machinery. It first brings hardship from direct compet.i.tion, but the cheapening of products brings enlarged demands and so gives new impetus to production, requiring the very skill which the better cla.s.s of laborers alone can furnish.

Thus the employment of Chinamen upon railroad embankments made places for native laborers as section bosses and engineers. The Huns and Italians that underbid the Irish miners in Pennsylvania have destroyed the "Molly McGuires" by making the same men responsible for larger enterprises. Yet the standards of living, which show a constant improvement, indicate a truer freedom of compet.i.tion and a clearer recognition of individual wants and abilities. No one can watch the development of any country without realizing that its thrift, enterprise and progressive welfare depend largely upon increasing wants. Men who live best produce most and enjoy most.

Chapter XVIII. Wages And Profits.

_Wages distinguished from profits._-In discussing the subject of wages and profits, it is necessary to remember that both are compensation in different ways for actual exertion. If in estimating profits we sometimes include a return for the use of capital, it is from incomplete a.n.a.lysis of the forces in use, since the interest upon capital can easily be separated in all actual practice, and in most enterprises is counted as a distinct expense to be provided for in entering upon the undertaking. The profits really belong to the management of any undertaking, as return for the exertion in that management. In every-day use the term wages is applied only to the stipulated amount paid from time to time for services rendered to another. There is practically no difference between such payments made for service by the hour, day, week, month or year. If, however, the engagement for service is by the year, the name salary is more likely to be given than wages.

Further, the term wages is most distinctly applied when the service is rendered as a task, and wage-earners when found in considerable bodies are usually called operatives, under the natural cla.s.sification of labor explained and ill.u.s.trated in Chapter III (page 35).

The services of an overseer are much more likely to be permanently required, and his wages are therefore called a salary, estimated by the year even though payments be made monthly or even weekly. In this case, the labor is chiefly executive, taking a higher rank because of the greater powers required. In this case the overseer is supposed to have definite plans provided for his work, and to carry out those plans to the best of his ability.

If, in contrast with this, one's efforts are given to managing a business, devising the ends to be accomplished as well as planning for their accomplishment, he is said to have entire responsibility for results and to receive what he can make out of the business. His exertion is chiefly speculative labor, and the returns for his _speculation_ or foresight-often effort of the severest kind-are termed profits. Such efforts have already been ill.u.s.trated in Chapter III, page 35. No generally accepted name has been given to the one who thus carries the entire responsibility of the business, but the word manager conveys to most people the general idea involved. While it is true that a manager may sometimes work for a salary, in general the very inventive ability required for success makes the stimulant of profits the most natural means of securing higher effectiveness. Most managers, even of stock companies, must from the nature of the case be at least sharers in the profits.

Farmers easily distinguish between those who work for stipulated wages, often called farm hands, and the farmer himself, who gets the pay for all his endless variety of labor, including his constant planning, in the shape of profits.

_Wages defined._-Hence it is fair to define wages as a stipulated sum, paid at stipulated times, for stipulated services, measured either by the number of distinct services or by the time of service. A wage-earner must therefore be one who sells his powers, whatever they may be, for the use of another, bringing his own services rather than the products of those services to the best market he can find. In general, he prefers the definite promise of another to the indefinite chances that he may produce what is to be wanted in the future market. Very often he considers the bird in the hand worth any number in the bush, and is satisfied to take a certain living from day to day rather than risk his ability by his own contrivance to meet larger wants. Among the wage-earners we necessarily find all individuals of undeveloped powers of body or mind, dependent upon the rest of the community for both tools and task; also all who render personal services, and most of the laborers of all sorts in every kind of factory.

_Profits defined._-Profits may be defined as the indefinite returns for exertion, including all risks, which any manager of his own or others'

industry secures by bringing his products into open market. In general the term includes the recompense for any kind of labor, however rendered, if the uncertainty of demand and supply belongs to the one who renders the service. Thus even the fees of a lawyer or a doctor come under the general principles of profits, whenever the conditions of payment in any respect depend upon success. If, on the other hand, such fees are stipulated sums for a stated service, they fall into the rank of wages. That the dividing line between wages and profits is not always clear is shown in comparing payment by the piece in manufacturing clothing, for instance, and payment by the hour for the same kind of work. In the payment by the piece, the stimulant of enterprise borders upon the nature of profits. In payment by the hour, that stimulant is wanting. Yet we are likely to consider the difference as simply a difference in method of estimating wages. Two men ditching side by side may work, one by the day and the other by the rod.

It is possible even to combine the two systems of payment so as to involve both wages and profits. Farm hands in England have been paid a certain price per month, with a share in the profits, measured by the number of cart-loads of grain marketed. Clerks and agents frequently work for stipulated wages, with an added percentage upon the value of sales. Most farmers in estimating the results of a year's labor count their own services, at the price of a hand, as a part of the cost of their products, and distinguish as profits the surplus of product above all expenditures.

Thus a farmer may estimate as outgo the interest on capital invested, the wear and tear of machinery, the produce consumed upon the farm, the taxes paid to the government, and the wages to all who labor, including himself and his family. Any return from his products beyond enough to meet these outgoes he will consider profits. These will reward him for extra foresight and contrivance in management and marketing, as well as risk arising from possibility of failure in his plans, destruction of his crop or stock, fluctuations in price, and uncertainty of collection for his sales. Such risks and exertions every independent worker a.s.sumes. Usually the exertions are impossible to the inexperienced, and the risks cannot be taken without acc.u.mulated capital or a credit established upon well-known character and ability. This fact naturally limits the number of compet.i.tors for profits. The effect is clearly ill.u.s.trated in the difference between an ordinary farm hand and the renter of a farm. Few farmers would encourage the best of their farm hands to take the burden of risks and care implied in renting. The successful farm renter requires abilities and means, gained only by experience and acc.u.mulation.

_Wages vary with abilities employed._-The variation of wages among different cla.s.ses of workmen in the same calling is universally recognized as dependent upon the powers employed. The strictly operative labor is usually paid by the hour, day or week, the terms varying with the supposed strength or skill exerted. Executive duties commanding monthly or yearly salaries vary with the total amount of responsibility implied, the large establishment requiring greater abilities than the small one. The strain of responsibility increases in some degree with the number of operative laborers employed, and successful oversight of many hands may be essential to their profitable employment. In that case the salary of the overseer gains something of the nature of profits, since the manager gauges the pay by profits expected. If, as in great stock companies, a manager is hired at a stipulated salary, his personal abilities, as tested by accomplishment, are likely to be the sole gauge of wages. A successful manager of a great enterprise can scarcely be said to have a market price for his services, but will estimate himself in large measure by the profits he might secure as an independent business man. Within limits, such salaries will vary with the experience and inventive ability required.

_Supply and demand in wages._-Wages in general are subject as truly to the law of supply and demand as are the products of labor. If few places are vacant and many applicants seek those places, it is impossible to prevent the reduction of wages through the anxiety of some applicants to secure places. On the other hand, if few applicants seek the places open to many, each will find the employer most willing to give an increase of wages for his work. Laws cannot prevent such natural compet.i.tion, though they may hinder it. Even organization under secret bonds can only temporarily restrain. Human nature is stronger than any arbitrary restriction.

In general, then, wages in any particular occupation may be affected directly by limited compet.i.tion. Any necessity for peculiar abilities of body or mind, or for preparation by education or training, makes certain, as far as it goes, a limited compet.i.tion, and therefore the opportunity for higher than ordinary wages. In the same way, if unavoidable hardships or dangers are involved, comparatively few workers will seek such employment and can have larger pay. If, however, the dangers carry with them a stimulating excitement and exhibition of daring, arousing admiration for the worker, this may offset entirely the effect of the danger.

Soldiers and railroad employes for such reasons do not command pay in proportion to the dangers met. Any employment where there are obstacles to natural advancement or where continuance is uncertain does not attract applicants except by higher wages. Ill.u.s.trations of all these occasions for limited compet.i.tion are found everywhere.

_Stimulants to compet.i.tion._-If any occupation shows circ.u.mstances making entrance easy for new applicants, or if advantages for promotion are readily seen, or if it seems to have a special respectability with the advantage of social privileges, especially if it in some respects seems a work of philanthropy, there will be mult.i.tudes ready to engage, and willing to undertake the work at less than average compensation. It is commonly said that these peculiar advantages are a part of the compensation. They operate simply as a stimulant to compet.i.tion, making more people willing to enter such employment at small wages than would be willing without these special advantages.

A good ill.u.s.tration of such employments is found in common school teaching. While a teacher does need an expensive preparation, and success is dependent upon special adaptability to the work, it is nevertheless true that the work can be taken up readily and as readily laid down; it confers upon the applicant the privilege of social recognition and somewhat of personal dignity; it gives opportunities for some note in the community, and, with all, it is considered a work of philanthropic character, ent.i.tling to the grat.i.tude of the public. The result is that teachers everywhere command less of salary or wages in proportion to their abilities than other cla.s.ses of wage-earners. Fortunately, this stimulant to compet.i.tion appeals largely to those characteristics of the individual teacher which make him more serviceable in his calling. The opportunity for a life of study, added to other considerations, makes still more effective the compet.i.tion of earnest, philanthropic students, such as the world needs for teachers.

In the lower ranks of teachers, compet.i.tion is still more increased by the fact that common school teaching can be temporarily carried on in the intervals of study, without interfering with mental growth. Teaching is also specially adapted for the temporary employment of young men and women not quite ready to enter the actual life work. Acquaintance with human nature, which it fosters, is thought to be good preparation for home and business life. The employments in which women largely engage as wage-earners are chiefly of this temporary character. The fact that the life work of most women must be the making of the home hinders compet.i.tion in employments where long apprenticeship or special skill of any kind may be demanded. Any temporary employment not only appeals to her sense of capacity for earning wages, but seems better adapted to her future. If that employment at the same time affords opportunity for social life and calls for the natural adornments of youth, the young woman considers wages only a small part of the general consideration, and is satisfied with a bare living. Hence clerkships in stores, subordinate positions as teachers and places as typewriters are crowded with applicants at wages insufficient for a life-time support. Employment in domestic service, which might be supposed more consistent with the larger work of life, is rendered less attractive by the almost entire absence of social privileges and natural opportunities for advancement in knowledge of the world. Girls who would prefer house work, with equal social freedom and the natural stimulant of contact with other young people, compete for lower wages in less satisfactory employment during the years of their girlhood. This is less noticeable in country life, where girls in domestic service become a part of the household and share in the privileges of the young people at home.

Another ill.u.s.tration of the depressing effect upon wages of excessive compet.i.tion is found in the work of women upon cheap clothing. This work is usually done by the piece in the home, and can be taken up at intervals between household duties. Many women consider earnings of this kind a mere addition of spending money to a somewhat meager support in their home life. It can be carried on without display, and so preserves the dignity of persons who would otherwise shrink from wage earning. The result is a very serious compet.i.tion, reducing wages below even enough to sustain life and character.

These are only ill.u.s.trations of what happens in every calling when circ.u.mstances stimulate excessive compet.i.tion. Relief can come only from larger range of satisfactory employment and a clearer distinction in favor of genuine wage-earners and genuine employers among the ma.s.s of the people. The customs of society have a much stronger influence upon the life of women in steady employments than upon that of men. A thoroughly enlightened community can do much to enlarge the sphere of such women as are naturally wage-earners, by proper encouragement of their enterprise.

_Fluctuation of wages._-Wages in every employment are just as naturally subject to fluctuation under the law of supply and demand as are prices of commodities. Whatever operates to increase the number seeking employment, or to diminish the amount of employment open to compet.i.tion, reduces the wages. Whatever increases the opportunity for employment, or diminishes the number of persons seeking employment, increases the wages. This is well ill.u.s.trated in the cost of harvest hands in a year of large crops as compared with a year of small crops. Any financial disturbance, checking the building of railroads and other great enterprises, brings mult.i.tudes of would-be farm hands to compete with those who naturally follow farming.

On the other hand, the introduction of factories or mining industries has sometimes affected directly the wages of farm hands through a large region by lessening compet.i.tion.

_Upward tendency of wages._-It is certain that the general tendency of wages in all employments is upward rather than downward, in spite of serious disturbances from financial depression often repeated. The gradual increase of welfare among wage-earners is greater even than the increase in money wages. Those who are inclined to join in the cry that the former times were better than these can be answered as they were in Solomon's time, "Thou dost not inquire wisely concerning this." No doubt the transition from small workshops to large ones and from small factories to great combinations has caused friction in adjustment to the new conditions. Many are now wage-earners who were once profit-gainers. But with the improvements in a.s.sociation and a clearer understanding of abilities and needs, each worker becomes a stronger factor than ever before in bringing about a fair compet.i.tion and a satisfactory compensation.

There are still new difficulties in every change of method. The influence of custom often r.e.t.a.r.ds freedom of movement, makes more slow the natural rise of wages, and hinders a gradual adjustment to new conditions. In many cases it prevents individual enterprise among wage-earners, and crowds from the higher ranks into compet.i.tion with the lower because of no natural outlet for ambition. Even laws intended to protect laborers sometimes operate against them. Thus a law restricting the terms of contract between workmen and their employer has sometimes prevented the employer from investing capital in a business which otherwise would have increased the opportunity for labor, and so would have actually increased wages.

The effect of free schools upon ability to earn is generally recognized.

The best estimates place the increase resulting from common school education at fully 25 per cent. Some of the best establishments are limiting their offers of employment to young people who have had the advantage of even high school training. This more general education tends in two ways to increase the compensation of wage-earners: first, by giving a clear knowledge of abilities that makes compet.i.tion fairer; and second, by increasing the general effectiveness of all production, which enlarges the sum to be divided.