part 3 of PEACE PLAN 11,
Public insurance and compensation money
by Ulrich von Beckerath
This file was created near end of nov 98; last minor changes in dec 98
Tripod tool Nedstat installed near the end of nov 98 but not correctly till july 99

   poetpiet@hotbot.com
Go see what else poetpiet can puzzle people with here
....................................or here..................................
or check the intro to this and other files in this first batch of guest appearances concerning all sorts of currency issues

J. THE STANDARD OF VALUE IN RELATION TO INSURANCE IN ASIA, MORE ESPECIALLY IN IRANQ (I rank range and hopper di pop)
Most contemporary economists are partisans of the modern monetary theory. The essence of this theory is the viewpoint which already the Finance Minister of Louis Xl, Chamillard, vainly endeavoured to impose on the French people, namely, that the ruler should possess the right: _
a ) to fix the value of paper money at his own discretion, end
b ) to demand that the population should make extensive use of this paper money, (Camillard required that a quarter of all sales should be mediated by the "royal i e, h i s  paper money). ( See Roscher, "National-Oekonomie des Handels und Gewerbefleisses" chapter 7 ) The hereby imposed restriction of  c l e a r i n g  is noteworthy. Clearing is a very .e m b a r r a s s i n g category for Governments bent on currency abuses for in it is immanent the emancipation from the money monopoly of the State end it inevitably introducee into the prevaiLing system of payment the ele_ ment of  s t a b l e  v a l u e,(Prohibition in Soviet Russia to remunerate workers with confirmed clearing cheques pursuant to the currency Laws of 1930, Further, a l s o in Soviet Russia, prohibition for worker-co-operatives to endorse cheques )
The fact that the real sovereign, Louis XIV, stood subjectively aloof from these theories, makes clear the meaning of that demand. Chamillard, with his quite inferior capacities, claimed for the  s o v e r e i g n  s  power which he was sure he end his friends would necessarily  w i e l d. Shrewdly enough, he eked out therefore his own deficiencies with the (filched) power of the sovereign. At the same time he met implicitly every criticism of his capacity as a finance minister by that very measure, in that any criticism appeared necessarily as an act of rebellion against the king, an attempt to challenge his sovereign rights
So it was then and today it is scarcely different. Meanwhile the money theorists have grafted onto their claims the now well developed  t h e o r y  o f  i n d e x  n u m b e r s  as well as the theory of the terrestrial influence of sunspots which also may be regarded as established today These three components may be said to form now a seemingly firmly founded unity knit together by mathematica, astronomy, statistics, end patriotism. It inspires in the cultured Asiatic, too no less awe than his less cultured compatriot exhibits before the idols in the temples of Benares, with their many heads end dozens of arms.
The modern monetary theory is fortunately of such recent date that its genes.is may be easily follewed in alt its ramifications. It was bom during the War and further "developed" during the inflations of the postwar period end that simply for the purpose of justifying the financial policy of those years. What were the theorists to do? They had no proposals of their own to submit, They were obliged, however, to say something, end so they just defended what the governments were doing. (Thus an eminent (237) theorist of those theorist of those days did not shrink from affirming in print that in the "light" of the modern monetary theory the depreciation of the French assignats should not be off hand considered as due to the printing of notes. The official French view of that day that the depreciation was the work of Hamburg speculators might have after all something to say for itself.) in the minds of the younger generation, the modern theory has become an a p r i o r i form of thought,  in the sense of an Aristotelian category, The sunspot curves associated with the theory possess also the special advantage that i f  a critically inclined student should entertain the idee that the monopoly of the central banks of issue might be a possible cause of the depression, he could be at once silenced by referring him to the c o s m i c components of the monetary theory the study of which requires today several years end much more mathematica than Copernicus needed to establish his world system. This same young scholar who would not have been daunted by the  m u n d a n e money powers, becomes, since he is only a  c r i t i c  end not a  h e r e t i c  overawed by the  c e l e s t i a l  powers who are so intimately associated with the former. However, a healthy reaction against the modern theory, with its belief in a  k i s m e t  by means of the maxima and minima of the secular end other trade curves, has set in precisely in Iran. For instance, in the issue of 30 June 1930 of its "Revue", The Teheran Chamber of Commerce places those economists who desire to postpone constructive reforms until, according to the trede cycle theory, the 'bottom of the crisis' has been reached, on a level with astrologers who counsel that action should only be taken in important enterprises when the constellations are favourably situated. The passage is quoted in Sir Arnold T. Wilson's excellent "Persia" ( London 1932 ).
However, Reza Shah Pahlevi, who is now the hope of his country, may be assured that those counsellors of his are altogether in the right, who place an Iranian paper currency on the European or American model that is #ith a forced rate end the suppression of free deaLings in goLd  on a level with the experiment, well  known by all cultured Iranians', of Shah Kan Khatou in 129k, who, on the advice of Izz-eddin Muzafer ibn Muhamed iDn Amid, the royal flag bearer, issued forced paper money (closely resembling that issued in China in november 1935 _ always the same idee), teut was obliged by an insurrection of the peop te, to allow again after three days, the use of honest money, lzz-eddin Muzafer lost his life thereby, The exchange rate of the tchao notes fell within a few hours to onetenths of their nominal value. Highwaymen paid cash to their victims (in tchao the nominal value of their robbery) end appealed to the forced rate. Without it. the vaLue of the notes would have probably returned to per end maintained itself there, since the amount issued seems to have been quite moderate  for Shiraz, e.g., only for 5 old tomen, equivalent to about 625.000 Swiss francs,That was not much for such a large city (Rabino "Banking in Persia", p. 26) It is remarkable that in these circumstances the taxation basis failed, i.e., that the population did not simply use the depreciated notes for making tax payments. The historians, who have carefully preserved for us the long name of the murdered flagbearer, paid no attention to this important point, It was probably a case where the taxation basis has failed in all times, namely, where the people end the business world are not sure of the amount of forced money issued end fear that the quantity of such money is about to be increased. Moreover,there is the point that only three days had elapsed between the first issue of the paper noney end the murder of the flagbearer. The paper money circulation in Iran today confirms Lorenz von Stein's rule that a country may possess a third of its annual public revenue in paper money of stable value.

That a people should rise in revolt in order to compel its Government to issue  s o u n d e r  money, has happened often in ancient times, particularly in the East. This has however, occurred only once in modern times, namely in October 1923 in Germany But popular revolts having for their object the depreciation of money have been frequent in recent years. It does not follow, however, that the mentality of peoples has changed of late. What is  i n t e n d e d  is always a removal of the  s h o r t a g e  i n  m e a n s  o f   p a y m e n t  and this, according to the common, but erroneous, opinion today of peoples, governments, end modern economie theory, is achieved through depreciation. The error of peoples, governments, end economists is revealed by the fact that so far the depreciations of money have in no country contributed to easing  the  d e p r e s s i o n,  (238) great as may have been the advantages reaped by some individuals. Asiatic economists deceive themselves for a pardonable reason. When visit Europe or America in order to study the effects of money depreciation, glimpse the magnificent buildings, the clean streets, the thousands of motor cars, the many well dressed individuals and they are tempted to reason :"These Europeans and Americans know something. Everything I see here has cost money end this money they have known how to secure somehow.  Their  m o n e t a r y  t h e o r y deserve respect, attention and emulation. And the latest currency depreciation has evidently had a favourable effect, else the traffic on Fifth Avenue or around Victoria Station, etc., could not be so enormous". Moreover, those whom the visitors meet are almost he men who had recommended currency depreciation end who are naturally convinced that the still surviving economie activity is only maintained by the preceding depreciation.
Returned to his own country, this economist naturally bases the advice he tenders his government on the impressions he has gathered. This inevitably paralyses the active intentions of the country's rulers, be he the Prime Minister or the Sovereign himself. His education does not suffice to refute the theorists on their own ground.
What the "practical men", i.e. the bankers, the wholesale merchants, the manufacturers and labour leaders demand, does not contradict the theory. It always amounts to this, that of the managed money of one group more should be  t a k e n  than hitherto  g i v e n  to the others. The ruler receives the impression that he is faced here with a complex of tasks where the best he possesses  -common sense, knowledge of history, energy end honest intentions- has as little scope as, say, in the application of the integral calculus (By the way' here also these qualities are not superfluous). In the face of the welter of opinions end claims placed before him daily, he is almost in the position of a general during a war, from whom the truth is kept, but must make decisions. Clausewitz the great war theorist, writes on this point in his chapter "Information in War": A large part of the information available during war is contradictory, a still larger part is untrue, end the largest part by far is wrapt in uncertainty, ... Well, indeed, if the reports, contradicting one another create a certain equilibrium end call forth criticism. For the uninitiated it is far worse if chance does not render him this service, but one report lends support her confirms exaggerates paints the picture with ever new colours, until necessity has hurriedly forced him to make a decision which is soon recognised as foolish, end all the reports as lies, exaggerations, mistakes end the like. ,.. Firmly, in reliance on his better,  i n n e r  knowledge, the leader must stand, like a rock whereon the waves break. This is not an easy part to play."
The part played by rulers faced by currency theorists is almost comparable with the position of Alphonso X, king of Castile. He found that Ptolemy's  e p i c y c l e s  were exceedinqly  c o m p l i c a t e d  end permitted himself in the presence of astrologers, high ecclesiastics end other eminent personalities the facetious remark: "I would have constructed the universe  m o r e  s i m p l y". This "blasphemy" it is said, cost him nearly his throne. But the ruler of our day would find it easy to shake the power of the theorists end even to set them at loggerheads, leaving him to carry out his own plans. He need only address to these gentlemen the embarrassing question where the  c l e a r i n g  element in their theory is to be found, which in practice -from Nebuchadnezzar downwards- mediates ninetenths of all economic transactions. From this question there is but a step to accepting Milhaud's monetary system which places  c l e a r i n g  in the centre end would also bring it within the grasp of peasants and workers (but nevertheless does not forbid any one to pay with gold, should he have any end wish to pay with it,)
Asiatic peoples have from time immemorial shown a sound end deep respect for honest fitness in currency matters. This respect has been reinforced by traditions many centuries old end has always been justified by experience. No statesman in any Asiatic land, whether in peace or war, has lacked means or success if he listened in this to  p u b l i c  o p i n i o n. Indeed, for over two thousand years the peoples of Asia have only regarded their ruler as legitimate end his reign as assured if he minted g o l d  c o i n s bearing his image or an appropriate inscription. The people are right! In iran, too, only such a dynasty will endure whose rulers possess the (239)  courage, in defiance of the theorists, to mint gold coins of full weight end permit these to circulate freely. A gold shortage is almost impossible if trading in gold end the possession of gold are not made difficult, end if, moreover the mint, for a moderate fee, converts any gold brought to it into coins as, in fact, the (un-executed) Iranian Act of 10 March 1930 provides. The mintage fee pursuant to article 6 was to be 1 gold rial for 1 kg. fine gold end 1 gold rial was to be equal to one twentieth pahlavi or to an English gold shilling, 1913 standerd.
Of course even after the introduction of the best currency laws end after putting into effect the principles proposed by Milhaud, there may yet passingly or for a longer period, end this in the best ruled country, be such a shortage of precious metal that it not only disappears from payment transactions, teut becomes useless as a standard of value in certain economie domains, e g., in leases. (In the world's richest country, in France, the peasants, because they no longer meet with gold coins end therefore eye with suspicion paper money, are more end more tending to conclude their lonqterm contracts in c e r e a l s instead of in gold, forcing thus the legislature lo concern itself with this question) China may now be approachirg this condition silver is still practicable in China as a standerd of value although it has disappeared from payment transactions. However, if the United States Treasury continues to attract silver by forced purchases, it might very well happen that silver would have to cease to be a standerd of value in China. It is true that some Chinese acquire thereby American dollars (parer dollars or bank balances) to the same extent as their country loses its silver. But the paper dollars do not come Chinese means of payment end, rightly enough, they are disliked as standerds of value. Over large parts of China, as has been the custom for centuries when there was a shortage of silver resort is had to copper coins end even to copper as a provisional standerd of value also to notes made out in copper, although the edicts of the Nanking government prescribe for both purposes the use of the  n o t e s  o f  t h e  c e n t r a l  b a n k which are detached from all concrete material. (The Kuomingtang patriot exclaims, however that the father land is in  d a n g e r end that at such times all means necessary for the defence of the country should be  c o n c e n t r a t e d in the hands of the Government. How, it is urged, can the currency be safeguarded if the means of payment are not  c e n t r a l i s e d  in the Government? The answer is that in times of national danger the country's  r i f l e s should be in the hands of the  s o l d i e r s end not in that of the Ministry of war. The shells should then be heaped by the side of the guns end not "centralised" in depots. But the  c l e a r i n g  instrument such as the standardised clearing cheque end the standardized purchasing certificate, should be, more particularly in times of  d a n g e r, in the hands of those who  h a v e something to clear, who must exchange labour power for rice end coal for tee end should not be the monopoly of the Finance Minister end the few who are in a posi~ion to clear without standardised certificates of small denominations It should be rather the duty of the Finance Minister to  e n c o u r a g e clearing transactions among the population end create without delay clearing centres where there are none, as welf as agree to clearing arrangements for tax payments, Moreover, the Finance Minister might devote a small fraction of the sums now prodigally spent on vainly putting into effect "currency laws", to translating quickly Milhaud's discourse held in 1931 end entitled ''Un projet d'action immidiate contre le chomage et contre la crise" end present a copy to every official This discourse is reprinted in several languages in the various editions of the "Annals of Collective Economy" (in English, in "Fresh Work, Fresh Markets", under the title: "A Plan for Immediate Action against Unemployment end the Economic Crisis Simultaneous end Joint Provision of Employment end Markets"). It contains the essence of what should be done.
Such a currency, based, on the one hand, on the principles of clearing end, on the other, on a fixed quantity of some currency material as the 'monetary unit' no more requires a Minister to  d e f e n d it than the Chinese weight measure "pikul" or the measure of length "li". Similarly, the old  t a e l standerd, based on a given  w e i g h t  of silver and only recently abolished could not have been imperi lied by any attack whatever whether of a Government or of speculators, not even by the combined might of all governments end all the world's speculators.               240
An Asiatic statesman must be equal to a situation like that prevai ling now in China, end this involves that he reconnises it for what it is How  n o t  to act in suchsituations follows from the results of the Nanking government's conduct. lts currency policy actually led the competing authorities of the Northern Provinces mainlv in order to secure a serviceable currency end means of payment, to cease in november 1935 all opposition against the separatism now latent everywhere in Asia.
Given the unrestricted right of issuing purchasing certificates whose value is fixed in aprecious metal teut which are not  c o n v e r t i b l e into this as well as a debt legislation which does not entitle the creditor to metal when there is a shortage of it, then theprecious metal concerned remains practicable as a  s t a n d a r d  o f  v a l u e  even if it hasdisappeared from extensive regions, allowing for sufficient trede with countries where the precious metal concerned still circulates effectively end unrestrictedly. But should tredeeith such countries shrink into insignificance, or should the precious metal begin to departfrom those countries also, a new standerd of value would have to be introduced In peacetimes, when nothing else is feasible, as now in China, it is open to every isiatic people toa dopt a copner currency. Such a currency existed already three centuries ego in Sweden and was the immediate cause for the introduction of the first European notes which were then most appropriately called "transport scrip".

Should, however, for anv reason, copper cease to be available (e.g., because of the outbreak of a war when the Government requires all copper for making shell bands), it might be considered whether the k i l o w a t t h o u r of the powerstations should not be chosen as measure of value, end this also for insurance contracts, the power stations issuing at the same time a kwh money. (The "Revue d'Economie Politique", July-Augustnumber, 1934, Paris, published a most interesting correspondence betweer, Laurent and Walras on physical labour units as standerds of value.) Of course, the kilowatt hour doesnot represent as stable a value as freely circulating gold end silver. But in the course oftime, as Asia comes to use wind power for producina ki lowatt hours,this defect will perhaps be remedied By the way, wind force acts #itfi the third potential of the velocity ofthe wind. Thus windmills which in Central Europe operate "normally" at a wind velocity of 4} m, produce an eightfold result in Asia when the wind velocity is doubLed ( whichfrequentLy occurs in desert regions). In fact, according to Wilson's "Persia", windmills were invented in Seistan' "the Land of winds", about the time of Muhammed. (Concerning the importance of windmills for the East see Laemmel, "Sotial physik")
At all events, in almost every region of Asia it is already possible to producekilowatt hours in some form in such quantities that no currency policy however senseless of any reading power could create a deficiency, If, for exampLe, every districtin China, where silver has disappeared,adopted a kwh standerd end accepted as its monetary unit, the kwh of the nearest power station the United States could buy up withits dollars as much kwh money as it could pay for. The free right of issue in China would remedy at once any shortage occasioned by these purchases. In fact, the result would be that the purchases would in effect represent, on a kwh basis, a non-interest bearing loan of the United States to China, repayable in goods or services, which would be very welcome to China

A currency policy inspired by the principles of Milhaud would enable a statesman,on e a c h attempt of neiqhbouring countries to enrich themselves at its expense through monetary measures taken, to turn the tables end  b e n e f i t  his own country instead. The advantage would be ;the greater the more the neighbouring governments were enmeshed in their currency fallacies, the later they recognised their error end the more exagnerated the measures they resorted to. To which, add, as Voltaire well remarked, that governments possess generally sufficient fortitude to bear the misfortunes of their peoples end that therefore the evils arising from monetary abuses have to be  v e r y  great before a government acknowledges its mistakes. Also, some highly placed personalities profit by every currency absurdity end therefore defend it publicly with greater zeal and logic. than the Government could. Hence a statesman's chances to profit by the fallacious currency policies of his neighbours, are decidedly favourable.

A huge efflux of precious metal abroad end a far-reaching deflation occasioned (241) thereby, occurred also in Iran about 10 years ago. The description offered by Hassan Naficy Mocharrav-od-Dowleh, in his highly  instructive work "L' impit et la vie economique et sociale en Perse". (Paris, 1924) , of the then prevailing deflation phenomena,shows that everything that had ever be n experienced in Europe end the United States in the matter of trade depressions end unemployment was far exceeded by what Iran underwent after the War. Naficy deplores the absence of credit institutions as these make good as far as possible,the shortage of ready money by notes, cheques end credit. such institutions have since been established so that Iran possesses now not less end not worse paper money end bank money than other countries having a "managed currency". There is no reason, however, why present day conditions should not be considerably ameliorated end why currency legislation animated by Milhaud's principles should not be enacted after which all provisions relating to money end foreign exchanae might be repealed.
The Currency Act of 1930 presented a notable beginning. Nevertheless we need not regres that it was not put into effect, Article II I of the Act (see the already mentioned excellent work by Hartner) established a fixed relation of value between silver rial end gold rial, that is a double monetary standerd such as formerly existed in France end the countries of the Latin Monetary Union. Thus a rial containing grammes fine silver would be equal to 0.3661191 gramme fine gold equivalent to an old English gold shilling. This ratio couid not possibly be maintained without prejudicing all Iran's creditors. D o u b l e  m o n e t a r y  s t a n d a r d s cannot continue for long. But  a  p a r a l l e l  m o n e t a r y  s t a n d a r d  such as Iran possessed for centuries, that is with free circulation of all means of payment end, above all,with free deaLings in metal (Hartner describes the condition as "species standard"), would have been just the right thing.
We cannot, however, agree with Hartner when he slates that the new Act introduced the concept of "legal tender. (see his work, p 28), which was foreign to the Shiitic law (see p. 91). True, in pursuance of the Currency Act, the debtor could pay the creditor, a t  h i s  d i s c r e t i o n  in gold coins end in silver coins  but, on the other hand, no provision of the Act entitles the creditor to demand a particular means of eavment a t  t h e  c r e d i t o r 's  d i s c r e t i o n  if article X of the Act states that henceforth taxes will be collected on a  'gold basis' the evident meaning is that gold is to be the  m e a s u r e  o f  v a l u e of the effective means of payment, exactly as was the case in Germany at the end of the inflation period. The ancient principle of the Shiitic law (the Sheriah), according to which, in the absence of special arrangements, the creditor must accept current means of payment, which the deblor is entitled to select, is hence maintained in the new Act.The Act therefore conformes to the rule enunciated by Milhaud in his "Organised Compensatory Trading" (London, 1937, p 59) That the old Sheriah draws such distinctions, probably not to be found in any European or American legislation (excepting perhaps in German legislation see par. 242 of the German Code of Civil Law: The deblor is bound to fulfil his obligations as required by good faith end in the light of commercial usage. That is, already before the Jara creditor could not by any means claim gold coin! ) must raise our respect for this ancient legislation, also for Muhammed who inaugurated it, end for his followers, among whom there were shrewd thinkers. (Jurists end economists will find in the dissertation, "Mohammedan Theories of Finance", by Nicolas F Aghnides, New York, 1916, much of value for non Mohammedans also).
Notwithstanding the paper currency existing now in Iran, but which does not deter many merchants from keeping their books in gold tomen, no people by tradition end law apart from the latest  stands nearer to Milhaud's ideas than that of Iran. It is hence not quite utopian to hope that the reforms proposed by Milhaud would be  s o o n (perhaps sooner than elsewhere) introduced in that country.
A comparatively stable currency is indispensable for insurance purposes. The stability need not be  a b s o l u t e, as would be the case for instance, with a perfect index currency (if it could be developed) Even a stable silver currency would suffice if silver were allowed to circulate freely. The necessity of a stable currency becomes alarmingly manifest where in currency depreciations the insured is at once subjected to a more or less considerable 'under-insurance' (insurance by assessments (242) form practised by several Prussian societies is, however a match for this. We shall return to the subject.)
But a stable currency is not onty required for themeasurement of value, teut also in order not to prejudice the insured in paymentsmade to him If a currency depreciation is expected, it might welf be anadvantaqe for him to remain gninsured end to saye his whole premium, although if he insured himself he would remain insured for a portion of his property when the currency aepreciation has started. The occasional advantage of remaining uninsured is demonstrated by the theory of value, especially as Daniel Bernouilli stated it, In par. 15 of his work that appeared in 1787, "De Mensura Sortis" (p 43 of Prof Pringsheiffl's translation, Leipzig, 1896), he calculates that, e.g., a merchant intending to despatch goods of the value of 10.000 route tos from Amsterdam to Petersburg end knowing that the transport risk is 5% (two centuries ago it was really that!) but that he would have to pay a premium of 800 roub'les' cen bear the risk himself if he possesses 4.043 roubles apartfrom those goods. If his calculation is correct, it follows that a currency depreciation of three-eighth immediately after the signing of the insurance contract would render the insurance disadvantageous for this merchant even if it had been issued at a net premium of 500 roubles.
It is, moreover, remarkable that since Bernouilli's time, two centuries ego, there has been no noticeable progress in estimating the highest point in the insurance premium where the insurance commences to be less advantageous for the insured than self-insurance. From the present standpoint of the science of insurance, Beinouilli's illustration suggests a hicher amount than 5043 roubles as the limit where the merchant may safely undertake to be his own insurer.We should consider to-day that the 5% probably mainly relates to partial losses end also that the inference is basedi oncomearatively few observations. Condorcet showed, for instance, that when we'have only the  o b s e r v a t i o n  to rely on that in 20 drawings out of an urn 19-white end 1 black balls were drawn, there being no other information as to the contente of the urn, theprobability of drawinq next a black ball should be estimated as 5,8, teut with ( 1 + 1 ): (20 + 1 ) . 2/21 - that is, quite differently than if we k n e w exactly that only 1/20 of all balls in the urn were black.
Condorcet deserves to be specially noticed here. His works are not only important for the development of public insurance, teut a lso for the history of paymenttransactions. Elected Member of the Academy at the age of 27 end one of the most distinguished French mathematicians, he was appointed in 1776 Inspector-of the Royal Mint end continued to hoed this post until he was called to be Finance Commissioner in1791 Condorcet's "Sur les monnais", which appeared in Necember 1790 shows how welfversed he was in  m i n t  m a t t e r s,  a domein very different indeed fcem that of  p a y m e n t  t r a n s a c t i o n s. He was Turgot's friend end collaborator for many vears Ourinathat eeriod he had not only occasion to recognise the desirability of the lower classeshaving their persons insured teut also to discover that the then prevailing privateinsurance system was manifestly not in a position to introduce such insurance. Accordingly, Condorcet published in 1790 a highly informative pamphlet of only 14 pages,"Sur les caisses d'accumulation". Several decades after hisdeath, his ideas on the subject were realised in a number of countries, mostcomprehensively in the public life-insurance institutions established in some of the Prussian provinces in 1910. That a century after Condorcet, end without knowing him, the founders of these institutions proceeded as he had proposed in his day, proves Condorcet's profound economie insight.
A principal cause of the French Revolution end its direct occasion- to which the_ mewe shall return at the close of this study - was a sudden, general shortage of means ofpayment This rendered the already excessive burdens of the populat~on taxes, groundrente, etc. - simply intolerable In numerous instances even the means of paymentneeded'for paying the army were wantinn end several military revolte followed as aconsequence, A substitute for the vanished money had to be found, All turned to theInspector of the Royal M i n t, the great end experienced economist Turgot's friend, the mathematician of world fame but it must be adnitted, Condorcet disappointed expectations. - Certainly, he was not more disappointing than the others. Ministers, authors, the National Assembly, end the king himself. However, his misapprehension of the only way of salvation, was a catastrophe, for he would have possessed sufficient authority to put into effect a sound policy. 243
First, Condorcet did not see that the domain of public finance should be sharply separated from that of private payment transactions, The bankruptcy of the State was perhaps inevitable -who could know it?- but the condition of the public finances should not have been the cause that, e. g., the silk manufacturers of Lyon could not procure the money for paying their workmen's wages. Banks, on the model of the already long established end tried Scottish system, might have helped, especially those based on the system prohibited by the English Parliament in 1765 end 1775. Before this legislation was enacted, bankers had the right to issue notes bearing words to the effect thtt the holder cen demand of the issuing bank the immediate conversion of the note into metallic currency, if the bank disposed of same, end that in the alternative, the note should be repayable at the option of the issuers (usually after six months), interest accruing being generally at 5% per annum, In practice, this system operated as would a system of purchasing certificates teut this by means of a theoretically faulty juridical construction One might almost say therefore that the system of purchasing certificates was already known at the time end had justified itself. It only asked to be the instrument for saving France.
The purchasing certificate system is not historically conditioned. It fits into e v e r y economie order where paper money circulates, Subsequently, when the system of assignates was in full force, when 800 workers in the National Printing Office did nothing day end night teut print notes, whilst at the same time ( or rather a s  a  c o n s e q u e n c e ) in accordance with the experience of  e v e r y inflation, the shortage in means of payment became more a c u t e _ at that moment in Paris, as Levasseur states, 80 different kinds of private money were issued, their only cover being that the issuer would accept them in payment at their face value. ((How lifelike! When has Nother Mature ever refused  to welcome and return upon the return of rock, especially if it has been transformed to dust meanwhile..your digitalizer))The same had happened shortly before in Scotland when the notes of the banks became subject to compulsory redemption end the banks only dared to issue a small proportion of the means of payment required by the country. Numerous firms issued notes which today we should describe as purchasing certificates; but the competent authorities, as eell as the economists reearded this simplv as a breach of the law (See Kerr, 'History of Banking in Scotland'.) And why that? Because neither in Great Britain nor in France would public opinion rid itself of the  i d e a  of convertibility. Unfortunately, Condorcet also held this view. In several passages of his writings on assignats, he stresses  c o n v e r t i b i l i t y, of course  d e f e r r e d  convertibility, and  t r u s t  therein as conditioning the circulation of paper means of payment. He advised that if this trust should be waning simply to  r e d u c e the issue or, as we should say, to produce a deflation And yet the cause of the revolution was a deflation! The National Assembly could naturally not see the advantage of such advice end the first assignats were printed.The smallest denominations were for over 200 livres, in order that they should not be used as a  m e a n s  o f  p a v m e n t  among the general population, Condorcet expressly praised this limitation,but the deflation grew in spite of the issue of 100 million livres in assignats. The urgency became also unmistakabte to provide means of payment for the  p e o p l e. There seemed to be only one possibility realisable w i t h o u t  d e l a y'  namely to issue assignats in  s m a l l denominations. Condorcet contradicted no longer, but demanded the convertibility of the small denominations into  c o p p e r,  if  s i l v e r should not be available, This, too was of course out of the question. He was so far removed from the idee of a means of payment based on  c l e a r i n g,  end therefore from the idee of value maintenance through  r e a d i n e s s  t o  a c c e p t, that he even misjudged the sound plan proposed by several persona, of an inconvertible paper money having an unforced exchange rate teut accepted at per in tax payments. He dismissed the plan in seven printed lines without criticising it. ("Plan d'un em prunt public avec des hypotheques spiciales", Paris 1789,)
In such a situation, in the midst of a sharp deftation end general ignoranceof the nature of a means of payment, all Governments have had recourse to inflation with forced value, end the French Government formed no exception. When, in addition, car broke out, an atmosphere was created where terror alone could flourish, (We who have  e x p e r i e n c e d four years of war end some years of inflation cen appreciate that situation, whilst the great historians of the Revolution, Carlyle for instance, 244 were faced by endless riddles because they passed their lives in a period havinq astable currency end enjoying almost undisturbed peace ) Condorcet was placed on Theproscription list in 1793 end only escaped the guillotine by taking poison which he hadlong carried about with trim. The French monetary system would~probably have developed quite differently if Condorcet, Mint Inspector, Member of the Academy, mathematician of renown, as well as economist of high authority, could have made useful Proposals in theid~rection of providing France with sufficient means af payment without inflation. If theFrench monetary system had thus remained sound,the Revolution would have taken adifferent direction. The terrorists would have remained what they were: Robespierre asentimental lawyer end a determined opponent of capital punishment, Collot d Herbois, a successful dramatist end, as actor, the people's darling. It remains an as yet unfilfilled taskof historians, at least to enumerate the instances where the world's history took a wrong turning simply because at a given period a given individual misconceived the means ofpayment problem end confused it with other problems.

K. INDEMNIFICATION OF LOSSES ONLY THROUGH REINSTATEMENT  OF DESTROYED VALUES AND NOT THROUGH CASH PAYMENTS

A very considerable proportion of all indemnities paid by insurance societies refers todamage caused by the insured themselves. To present this aspect in statistical form, isnaturally not possible. However, insurance statistics afford sufficient guidance to permitus to recognise this kind of morel risk For over a century it has been noted that w a r y e ar s are without exception 'good' fire years The contrary right have been expected, sincein war time f i r e  a i d cannot be as efficient as in peace time, but in war time pricesusually are on the upgrade, end in times of rising prices men do not freely choose tobecome creditors, not even of an insurance society. Everybody who in war time possesses material value, whether a house or commodities, endeavours to retain them. Add to which, rising prices occasion a general "under-insurance", A store, for instance valued to-day at 10 000 francs end insured for that amount, is, after the war has supervenedsuddenty worth 15 000 francs, teut is onLy insured for 10.000 francs. The "supplemen~aryinsurance" wilI not be taken up so rap~dly end the under-insurance reduces very considerably the temptation which might otherwise have existed to obtain ready money bysetting the store on fire. Insurance statistics relating to inflation times are even moresuggestive than those referring to war times.
The temptation to obtain ready money by bringing about a fire-loss is very great and is an aspect requiring careful study when contemplating the establishment of insurance societies in Asia. To ilustrate the importance of this aspect, it is not superfluous to mention that in life assurance the number of suicides among the insured is far more considerable than among persons who have not insured their lives. Pre-War investigationby Scandinavian offices ~showed a ten times greater rate among insured than among non-insured persona, In Germany the rate is about three times as high. Moreover, the suiciderate among the heavily insured is greater than that-among the Lightly insured. If we remember that the insured belong generally to sections of society where the causes driving the lower sections to suicide ( namely, illness as a chief cause, next to it, want ) act less 'intensively', if we further remember that the insured amount is not paid to theinsured teut to the surviving dependents, we shall appreciate the strength of the temptation to mobiLise ready money by brinqing about an ordinary insurance loss. (IncidentaLly remarked,the statistics, aLthough no proof of an irreproachable m o r a lsGnse in the sections of society concerned, nevertheless show that the f a m i l y s e n se existing in these sections teut denied by many of the order socialists, is very strong. Consider: every year both in Europe end in the United States several hundred individualstake their lives, only in order that their dependents ray come into ready money. (These statistics will undergo a greàt change after the introduction of Milhaud'spurchasing certificates)
It is noteworthy that many public insurance companies in Germany have managed to remove a large part of the temptation to secure ready money through bringing about (245) fire losses, by simply banding n o cash to the insured, teut making payments o n  his  b e h a l f.  Thus if a house is burnt down, the societies pay the builders, the suppliers, the architects end others. In some Prussian societies this method has been applied for about two centuries, the insured would have therefore to conspire with the builders and many others if he wished to secure ready money, perhaps for paying a burdensome debt or even to enable him to go on a holiday tour or the like.
Such conspiracies are not  u n k n o w n, but the strenght of the discouragement is evident. This partly explains why the fall in fire-losses in time of war is not as great in public societies as in private ones. That is, the incentive for increasing fire-losses, which did not operate during war time in the case of private offices, bu existed in peace time na ely,t e temptation to secure money by committing arson, was reduced in pubtic societies, simply because it as already absent more or less in peace time.
 This should be taken into consideration when establishingnew insurance  societies in Asia, more particularly public ones. The insurance conditions should therefore provide the the indemnity should not be paid directly to the client. The losses could thereby be reduced by probably not less than one fourth they could have been in absence of such a clause.

L: TARIFFS
In this respect the experience of other insurance societies, more especially the preWar experiences of Russian offices will be useful (see the cited work by Sergowski).
In a preceding section we explained that in the case of under insurance a loan might be granted to the sufferer from damage. Of course certain limits should be respected here It might be provided that, for instance, the oan should not exceed the declared amount of the insurance There is no room for details here.
The endeavour to place the insured in a situation economically correspond~ng to that he occupied before the loss, above all to replace completely the damaged objects, would be consistent with letting the insured beer any small losses ahich he is  a b l e  to bear it might be therefore provided that from every loss at least the value of three working days could be deducted end that losses valued at less than three dayst work would not be indemnified, larger margins would be frequently practicable. Such a provision would certainy induce the insured to be more careful with fire end naked lights than he could be if there ere no such provision. We owe the first detailed investigations about the eventual effect of such a clause to the American mathematician Whitney, who submitted them to the International Congress of Insurance Science at Vienna in 1909 (see vol 3 of the Congress Proceedings). According to his figures, the indemnities for 10.000 Losses relating to dwelling houses sere distributed as stated in the following table completed by Professor Riebesell of Berlin University :

1 = Losses in percentane of amount insured.
2 = Average loss, assuming an insurance amount of 100.000 for every house.
3 = Number of losses.
4 = Total indemnity for all losses.
5 = In percentage of the total amount insured.

1                     2                  3                  4                       5
  0 to10        5.000        8.627        43.135.000           42. 87
10 " 20      15.000           502          7.530.000             7.48
20 " 30       25.000           201          5.025.000             4. 99
30 " 40      35.000          130          4.550.000             16.52
40 " 50      45.000            93 \.           185.000              4.16
50 " 60       55.000            73           4.015,000             3.99
60 " 70      65.000            60           3.900,000              3.88
70 n 80      75.000            53          3.975 000               3.95
80 n 90      85.000            48           4.080 000              4.05
90 u 100     98 000         213         20 235 000            20.11

It follows that the premium could have been 42.87, less if the insured had sefinsured the first tenth of the amount insured ( See Riebesell, "Die mathematik der Feuer versicherung" Berlin, 1926)

oops orphaned sentence; I'll sort it later.
That the value of  t l i t y into metal, t remarks, on the c i possessor ) appears tr the greatest statesmen tend also to
press here to arrive at part 4 shortly, depending on traffic of course....