CAPITAL-GOODS AS A FACTOR IN PRODUCTION 309 



98. THE ROLE OF INSURANCE 



Sudden destruction of capital as the result of fire, wind, and 

 hailstorms, or the death of stock has been a frequent source of dis- 

 aster to the farmer. Such losses may be looked at from two points 

 of view. First, there is the social aspect of the case. If property has 

 been actually destroyed, the total equipment of the nation or of the 

 industry has been, by so much, curtailed and its efficiency reduced. 

 This loss cannot be compensated, though new effort and saving may 

 in time accumulate a new stock of goods. Obviously, mere insurance 

 settlements do not alter the fact of such loss to society's productive 

 plant. 



But there is also the individual aspect of the matter. While 

 insurance cannot restore the burned building or the dead animals, 

 it can restore their value, in part at least, to their former owner. 

 Thereby it enables him to replace his property and continue his 

 business. It protects his personal capital by distributing his losses 

 over many who have not so suffered. And the logical development 

 of the business of insurance is to bring about systematic efforts toward 

 the reduction of losses, by the introduction of preventive measures. 

 If the farmer is induced to be more careful concerning lanterns in the 

 barn or to take greater precautions against thresher fires; if his premises 

 are inspected by the veterinarian of the live-stock insurance company, 

 diseased animals eliminated, and sources of infection removed, what 

 began as an effort to protect the capital position of the individual 

 becomes a means of conserving the capital of society as a whole. 1 



1 For a discussion of farmers' mutual insurance companies, consult Powell, 

 Co-operation in Agriculture; Valgren, Quarterly Journal of Economics, XXV, 387. 



