the goods the wholesaler may pay only 10 per cent of the purchase price in cash, the remaining 90 per cent being advanced as a loan by the banker or manufacturer, the security for the loan being the goods themselves, but only when insured against loss by fire. Of course, the wholesaler or retailer, as the case may be, must pay for the insurance, but the reduced price at which he gets the goods, or the favorable rate of interest at which he secures the credit, pays for this insurance over and over again. As an insurance policy may be made to cover all stock that goes into a store from time to time during the term of the policy, $10,000 of insurance may, in the course of a year, have under its protection from $50,000 to $75,000 worth of merchandise, thus distributing the cost of the insurance over large property values.

It may be shown in another way that fire insurance enables a man with limited capital to transact a business much larger than he otherwise could do. Assume a grain dealer to be the possessor of $40,000 capital. With this capital he purchases wheat in the West at $1 a bushel, with a view to selling it in the East or storing it in a warehouse for a more favorable market. If this grain dealer's transactions were limited to cash purchases of wheat, he would probably be obliged to wait several weeks before he could sell his grain and liberate his capital for a new purchase, and his profit would be exceedingly small, since modern competition in that business enables him to realize a profit of only one to two cents per bushel. Grain dealers cannot afford to transact business on this basis, and all are obliged to resort to the use of credit. Instead of limiting his purchases to 40,000 bushels, our dealer will at once have this wheat inspected, graded, and represented by warehouse receipts. He will also have it insured against loss by fire in a reliable company. Then he will take the warehouse receipts, representing the wheat, and the in

surance policy to his banker as collateral security for a loan, and the banker will lend him money, probably, to the extent of 90 per cent of the value of the wheat, or to $36,000. Assuming wheat to remain at $1 a bushel, the dealer can at once purchase 36,000 bushels more with the proceeds of this loan. This new purchase of wheat will again be represented by new warehouse receipts, and will again be protected by fire insurance. The warehouse receipts and the policy covering the 36,000 bushels can again be offered to the banker as collateral security for a new loan of 90 per cent of the value, or say $32,400. With this new loan the dealer can at once purchase more wheat, can insure it, and with the new warehouse receipts and the fire insurance policy as collateral obtain another loan, and with this loan buy more wheat. By repeating the operation until his original capital has been absorbed in margins, it becomes clear that this grain dealer, though he started with only $40,000 capital, is nevertheless enabled, through the use of fire insurance, to do a $300,000 business, and accordingly makes seven or eight times the profit he could realize if his business had been restricted to cash transactions. The banker is willing to extend the credit, partly because he knows that wheat always has a ready market on our big produce exchanges, thus, in case of a decline in price, giving him a chance to sell the same before the margin of ten per cent on the loan is exhausted, and partly because the fire insurance policy protects him against the loss by fire of the security back of his loans. Likewise the exporter of a cargo of cotton may insure it under a marine policy, and with the policy and bill-oflading as collateral may at once command money, at the usual rate of interest, with which to buy another cargo and repeat the operation.

Insurance also helps to build homes, since the owner of ground who wants to build home can borrow a larger

sum of money on the building, if insured, and at a more favorable rate, than he could if there were no insurance. Mortgagees, as we shall see in another chapter, invariably have their interest in the mortgagor's property protected by an insurance policy. In a hundred ways it can be shown that fire and marine insurance have become absolute necessities of trade, without the assuring protection of which the large undertakings of to-day would be a gigantic gamble, and would never be attempted if liable to miscarry through a single fire or marine disaster. As it is, enormous sums are borrowed on stocks and bonds and warehouse receipts; merchants sell their wares on credit; investors furnish millions for the upbuilding of vast industries supporting whole towns; capitalists make loans on buildings worth many times the value of the ground on which they are built-all being willing to do this because they know that the insurance policy stands as collateral between them and loss.

Marine Insurance a national commercial weapon.Thus far attention has been directed solely to the services of fire and marine insurance as fundamental instruments of business and commerce. But our list of functions of insurance would not be complete if reference were not made to the vital importance of marine insurance under American auspices as a strategic agency-a commercial weapon in the maintenance of an American merchant marine and the development of our foreign commerce. Foreign trade is always a subject of keen rivalry between nations, and emphasis should, therefore, be given to the necessity of the possession of a strong national marine insurance institution as a powerful weapon for acquiring and controlling important channels of foreign commerce. The cost of hull and cargo insurance constitutes an important element in the operation of vessels and the sale of goods. Under modern competitive conditions, a

slight difference in insurance rates often represents the difference between operation at a profit and operation at a loss. Again, our leading competitors have for years used this type of insurance as a means—as a national commercial weapon-of controlling leading lines of trade for their own merchants, their own steamship lines, and their own banks. Nations adequately equipped with marine insurance facilities may deny the service altogether at strategic times, or give it only under unfavorable conditions, to the citizens of countries that do not possess adequate facilities of their own. Marine underwriters also necessarily become acquainted with the leading facts surrounding consignors, consignees, carriers, costs of production, methods of packing, handling and doing business, financial affiliations, and the conditions and price of sales, and for this reason adequate underwriting capacity, free from foreign control, is essential to the proper protection of our trade secrets.

CHAPTER II

THE POLICY CONTRACT IN FIRE INSURANCE

Fire Insurance Policy a Personal Contract.-A fire insurance policy is a personal contract which promises, in accordance with the restrictions expressed in the contract, to indemnify those who have an insurable interest against all actual direct loss or damage by fire to property as described in the policy. According to the above definition a fire insurance policy should be viewed as a contract, which, strictly speaking, does not insure the property but the persons who own the property or have an insurable interest therein. The importance of the personal factor in fire insurance cannot be over-emphasized. If, for example, we assume two buildings to be alike in all respects except ownership, the insurance company will have to regard these two risks as different as day is from night, if the one is owned by an honest man, and the other by a person who will not hesitate to realize from a dishonest fire. Dishonest carelessness and actual incendiarism are playing a large share in the enormous annual fire waste of the country, and there is scarcely a business which offers such temptation for gain through criminal procedure as does fire insurance. In fact, there is probably no type of contract in which one party (the insurer) is so absolutely at the mercy of the other (the insured). Overinsurance must by all means be guarded against, and yet for the benefit of the general public the company cannot obtain an accurate valuation of the property at the time of insurance. Only an approximate