With this key you can unlock every door in the economic temple. What you will see is that economics exists for the purpose of " justifying the works of God to man." Duplicates of this key are in the possession of all Veblen's disciples, and Davenport includes one of them among his Christmas tree ornaments. With it go other historical interpretations, of which one of the most curious is the statement that the Physiocratic school desired "accumulation rather of population than of wealth" (p. 507). Can it be that any one has forgotten what happened to the populationist Mirabeau when Quesnay fell upon him?

To describe all the decorations of this chapter would require too much space; let us confine ourselves to the solemn injunction to the economists to accept Davenport's definition of capital. "Economists will do well forthwith to recognize that rights of patent and royalty are capital; that rights of tribute through franchise privileges are capital; that police permits to rob passersby are capital; that legislative authority to rob importers, both early and late, is capital; and that generally every basis of private acquisition is by that very fact capital" (p. 519). And suppose we fail to extend the meaning of capital to these limits, what disaster will befall us? We shall fail to recognize" that some of the capital is iniquitous and disastrous for social welfare as other of the capital is beneficent" (p. 529). This amounts to saying that if we continue to draw a distinction between productive and purely acquisitive capital, we shall be unable to see that the two are different, and mix up their fates in our prayers.

I have already indicated my estimate of the value of this book to the specialist in economic theory. When interest in theory revives sufficiently to make advanced courses in theory practicable in the colleges, it will

serve as a text hard to surpass. Certainly it has not at present its peer for variety and fruitfulness of theoretical discussions. An announcement by the publisher suggests that it is intended also as an elementary text. As there are all varieties of needs to be met by textbook makers, this work may in some cases be suitable for such use. But it will be a brave instructor that will put so spiny an object into the college sophomore's nosebag.

ALVIN S. JOHNSON.

CORNELL UNIVERSITY.

FIRE INSURANCE RATES AND STATE

REGULATION

SUMMARY

I. Introductory; peculiarities as regards fire insurance rates in the United States, 447. How the price of indemnity differs from ordinary prices, 448. - II. The theory of these rates, 450.- Classification no sure way of measuring hazard, 452. — Analysis of hazard into component parts, 453. — Influence of geographical area, 455. — III. Conflagrations a disturbing factor in the United States, 457. — IV. State regulation of three kinds: (1) Valued policy laws, 458. — (2) Anticoinsurance laws, 460. — (3) Anti-trust laws, 462.

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I

INTRODUCTORY

Conclusion, 464.

RATES in fire insurance, in common with rates for other services which vitally affect the public, are now the subject for much discussion and legislation in the United States. The determination of fair rates in fire insurance is peculiarly difficult in this country for the following reasons: first, on account of the complexity of the elements entering into the cost of the service; second, on account of the past and prospective presence of conflagrations; third, on account of the legal status of insurance in the United States. A few words of introduction will serve to make more clear these peculiarities.

First, as regards rates and cost, two methods of determining fire insurance charges have been followed. In the early history of fire insurance, buildings were divided into the two classes of frame and brick, upon which a rate on the basis of past experience and per

sonal judgment was determined. In the evolution of rate-making, distinctions came to be made between classes of buildings within these two general classes. Special agents, acting with local agents, made all the rates. Later, selected representatives from companies made the rates for all companies for a city. Little effort was made to analyze the factors entering into each risk. It was a method of applying personal judgment and interpreting past experience. Altho the result was in some cases satisfactory, yet the general disregard of the good and bad features in a particular risk did not sufficiently differentiate the particular risk from the fictitious average risk. Later came the second method, under which various systems of schedule rating were developed in which an analysis of the component elements in the risk is made. The application of these schedule systems is now very generally made by organizations independent of the insurance companies.

Fire insurance is an indemnity for the whole or partial loss of property, but the cost of this indemnity cannot be determined with accuracy at the time the indemnity is sold. That is to say, if the cost of the service theory should be accepted as a proper basis for determining the charge, there is no assurance that the price charged will be equal to this cost, since so many variable factors affect the cost.

Whatever the merchant sells has been bought in the open market, and his selling price is ordinarily determined by adding the cost of freight, rent, clerk hire, fuel and light, together with such profit as he may regard as adequate. A manufacturer buys his raw material and by adding cost of labor, operating expenses, interest on his plant and his profit loading, he fixes the price at which he desires to sell his manufactured goods. A common carrier knows approximately what it costs to

transport passengers or merchandise by water or by rail. Whoever has anything to sell attempts to fix in advance the price of what he sells so that he may derive a profit. But the insurer sells neither merchandise nor labor; he sells promises to pay in the form of a contract of indemnity against loss caused by the happening of an uncertain event. But when he sells his contract of insurance- or more properly speaking his bond of indemnity he has no means of knowing whether he will be called upon to pay the stipulated indemnity in whole or in part.

Supply and demand do not affect the price at which this indemnity is sold in the same manner in which supply and demand affect the price of commodities. The losses which occur after the price is determined are the final determinants in fixing this price, and these losses are beyond the control of the insurer. In certain cases, as in preferred risks upon which losses are very likely to be low, a condition of surplus of supply of insurance may exist. This condition may tend to establish inadequate rates. On the other hand it may happen that the supply of insurance for other classes of undesirable risks tends to be below the demand. The result is that the forces of demand and supply do not establish that equilibrium which produces fair prices for all classes of risks.

In the second place, conflagrations introduce a very large disturbing factor in any assumed system of rates which seem at the time equitable.

In the third place, insurance in the United States is a subject under the complete regulation of the states, having been declared neither commerce nor an instrumentality of commerce by the United States Supreme Court. The significance of this fact for rates is that there is a strong tendency on the part of states to estab