usiness, competition forced them to
insure the vessel and cargo of the ordinary trader for something near
the percentage of risk involved. The insurance thus tended to become a
mutual protection to the ship-owners; what had to be paid in premiums
to cover risk came to be counted as part of the cost of carrying on
that business.

Every legitimate form of insurance exhibits substantially the same
characteristics; it reduces loss at the margin where it is felt most
keenly. The difference between insurance and gambling, thus, lies
primarily in the purpose of insurance, which is not to increase
artificially the risk that any individual runs, but to neutralize or
offset an already existing chance. The insurance bet is what is called
a "hedge." The difference lies further in the collective method of
insurance, which combines the chances scattered among a number of
persons. Insurance does not increase the total of risks and of losses,
but merely combines, averages, and distributes them equally among all
the insured. This eliminates the chance element to the individual by
converting it into a regular cost.

Sec. 6. #Insurance as mutual protection.# Modern insurance is conducted
either by enterprisers for profit, or by mutual companies; but in any
case in large measure the losses in insurance are mutually shared,
as the premiums (plus interest earned) equal the total losses plus
operating expenses and profit, if any is made. Each insured gets a
contract of indemnity for the payment of a sum that will help cover
the losses of others. Such an exchange is mutually beneficial. The
premium comes from marginal income; the loss if it occurs would fall
upon the parts of income having higher value to the insured. The less
urgent needs of the present are sacrificed in order to protect
the income that gratifies the more urgent needs of the future. In
insurance each party gives a smaller value for a greater; each makes a
gain. The greater security in business stimulates effort. This effect
is quite the opposite of that of gambling.

Sec. 7. #Conditions of sound insurance.# To be economically sound,
insurance must have to do with real productive agents, and with
a group of occurrences which, as a whole, are approximately
ascertainable in advance--however irregularly they may fall upon
individuals. The beneficiary must have an _incurable interest_ in the
property or person insured; that is, the beneficiary must actually
suffer a loss by th