Public insurance and compensation money
by Ulrich von Beckerath
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246 years, unfortunately' the investigations relating to the influence of margins have not been continued. It should be added that in recent times in Europe only experts connected with public insurance have examined this very important problem It appears, however, not to be generally known in insurance circles that the German insurance mathematician, Th. Wittstein in his work published in 1885 "Das mathematische Risiko der Versicherungspesellschaften"(The Mathematical Risk of Insurance Societies",  p. 20 67ff ) presented a promising, and already in its initial stage, practica! theory of partial losses. As Wittstein had no statistics to aid him, he assumed that out of 5 000 buildings, 1 is annually entirely destroyed by fire, 3 are three-quarters destroyed, 8 one-half, and 11 one-quarter, the other 4.977 buildings remaining undamaged. He also assumed an annual net premium of 2 per mil. His scheme, which combines the concepts "premium", "loss frequency" and "damage intensity" in a simple and distinct way, is not less scientific than Whitney's. In his tables Whitney does not indicate how many buildings are involved in the 10.000 losses and reaches therefore only circuitousiv the amount of a premium on the basis of his statistics.
            Attention should be called here to a considerable improvement in building insurance conditions by the fire society of the Province of Brandenburg. The society regularly pays the  f u l l  value of a destroyed building as estimated at the time it was new even if it should transpire when settling that the insured had paid his contribution on the basis of too low a valuation. The society prepares the valuations with great care and exactitude. It cen therefore actually undertake the risk that the valuations were inaccurate (If the insurance contract is for 10 years, the society bears the cost of the vaLuation; otherwise the insured.)
          Should, in the course of time, the price of building materials rise or the wages of building operatives increase the society bears the risk involved. It can easily do this, since it works on the levy principle. Furthermore, since after great fires a house-owner suffers usually from receiving no  r e n t payments, the society indemnifies this loss for a period up to 6 months after the fire.
       Should the house-owner when concluding his insurance cont;act, forget to include expressly somethinq appertaining to his house of Less than 2000 marks value, say a stable or if he sfiouLd subsequently enhance the value of his house by extensions or reconstruction, but forget to communicate this to the society, the latter will provide him free of charge with a "precaution insurance" up to the value of 2.000 marks, or in the case of subsequent extensions reconstructions, etc., up to 3% of the value of the house. The society also undertaltes to pay indemnities in the case of fire-losses due to insurrections or commotions The contribution in 1935 for good urban buildings was 16 marks for each 100 000 marks insured. The insurance conditions leave little to be desired. The society which was founded in 1791 _ that is, more than two centur fes ago- has shown that the form of public insurance need constitute no obstacle to making insurance as perfect technically as possible, provided that legislation does not hamper its operations with redundant regulations.


A society such as that sketched above, which raises its contributions in a form most convenient for its members and collecte these not in ready money unLess the members possess some, but offers its members the possibility of paying their contributions with their own labour goods - such a society may, in case of extremely heavy losses very welf impose sometimes a h i 9 h e r contribution than a private office couid demand in premiums and in cash. Experience has also shown that damage fluctuations of about 100% of the meen damage quotient in the case of offices having about 10.000 insurances are somewhat rare if we exclude objects from insurance the value of which exceed about fivefold the average insurance amount. Public societies operating on the principles here described may therefore reasonably dispense with reinsurance such as is customary among private offices and is indeed indispensable for them. The Prussian and Swiss pub-lic societies have, in fact dispensed with reinsurance Proper for nearly two centuries and part ey do so still. It is very -important for Asiatic pubLic societies that it is possible to waive re-insurance, for no European company engaged in reinsurance will risk its capital in the near future on objects which are at 247 present left alone by all European and United States companies engaged in  d i r e c t  insurance business. But there is always the possibility of several public insurance societies of a country sharing in the insurance of larger objects and thereby bring  a m o n g  t h e m s e l v e s  a system of reinsurance. Precisely in this direction, i e, in the organisation of mutual help, the federations of public insurance societies in Europe have been decidedly successful.
         The technical insurance principles -here expounded allow not only the waiving of reinsurance,but even the deiving of guaranteed capita!. However, this does not exclude a society later accumulating reserve funds in order to achieve the greatest unity possible in contributions.
If public societies desire to reinsure one another, the question arises how much of each risk a society should retain to prevent its being tempted to undertake bad risks at a cheap premium, whilst transferring the high risk to the shoulders of the other societies. ln European insurance there is the rule that every society should retain in general at least one-tenth of a risk, if special circumstances do not warrant a higher re-insurance. However, the retained portion is graded according to the perils involved. Of dangerous risks, smaller amounts are retained than of less dangerous ones. Arrangements are made on the basis of comprehensive tables drawn up on the practical principles or simply on the basis of the "finger-tips impressions" of an official. This method is complicated and leads also to abuse, It would be much better to determine the amount retained according to the  p r e m i u m, the following arrangement being perhaps made with the re-insurance company, namely that the company would take over of each object such a sum on its own account as would correspond approximately to an annual premium of 200 Swiss francs. Such an arrangement would not only be fairer than the hitherto customary mode of self-retention, but vould greatly simplify administrative work, prevent abuses, and constitute a most effective obstacle to attempts to let the reinsurance company bear not only an absolutely greater risk than the society bears, but also a relatively greater risk In the case of pubic societies here proposed a sta~dard contribution would replace the fixed premium customary among private offices. (On the technique of a system of reinsurance based on a premium amount as self-retention, see a study by the author in the uoe reichische Revue" of 17 May 1932, under the heading "Ueber die Bestimmung des Sel behalts." )

       Where an object is collectively insured by several public societies, the folloeing asuects deserve attention. Private insurance offices sometimes, and in any event more often than justifiable, decline to insure certain objects because of the  g r e a t  r i s k they involve, without considering that an appropriate premium corresponds to the contribution a large society would have to impose if it insured o n l y the hazardous objects in question together with an extra for administrative costs and reserve fund of 50% Only if the proprietor declined to pay this premiue, should a refusal to insure that risk be justified. An illustration may not be amiss here. The Pomeranian private insurance offices declined for many decades to insure  w i n d m i l l s. They did not see that if on about 1 million marks windmill insurance there fall annually an average loss of 20 000 Marks, or 20 per mill, then sith a double annual premium of 40 per mie a windmill becomes insurable.
A windmill which pays in contributions for every 1.000 rials insured 40 times as much as a well-built stone house, is, despite its greater risk, to be considered technically in every say as insurable an object as that house. For scores of years the windmills in Pommerania were dependent for insurance on the public societies existing in that province and they are practically in the same position to-day. This deconstrates a remarkable usefulness of these societies. And the circumstances are similar in Asia. Many objects for which insurance protection is indispensable, such as windmills, aould be probably insufficiently protected by private offices. It might, of course, happen that such objects' carry too great a risk for any single public society. Here collective insurance would become appropriate In a succeeding chapter the desirability of forging a  f e d e r a t i o n  of the public insurance societies of a country, say Iran, will be discussed. One of the tasks of the federati'on sight be the organisation of collective insurances on the principles proposed here. Such a system of insurance uould also prove useful in the case of objects which cannot be rein 248 stated by supplies and labour available in the district where the object is situated. Suppose a mosque is to be insured in a region where there is a complete deficiency of building materials, but which is otherwise flourishing. In such an instance it would perhaps not be absolutely essential, although desirable to arrange for a co-insurance with other societies situated in districts where building materials are produced.
               Goods warrants for which, say, in Tabriz hundreds or thousands of persons will readily supply all sorts of goods just as for silver coins would be utilisable as a means of payment also in other, distant regions that supply timber and other building material, But probably only with a discount. However, if the society of the region supplying building materials participates in the insurance it wi ll be the easier to utilise in that district at per goods warrants issued in the district where the building was burnt down.

V. F R E S H  L E G I S L A T I O N
Probably little fresh legislation would be required to enable the new societies to function smoothly and successfully As already intimated, laws or edicts concerning compulsory participation would be necessary. The same laws could also stipulate`, as did the corresponding Prussian laws two centuries back (see the previoualy mentioned work by Managing Director Dr. Brunn) that the sufferers' claims against the society are not subject to seizure by any party,but are to be utilised exclusively for reprocuring or re-producing the destroyed values. Only if, on quite special grounds, such a re-ordering does not take place, the management of the society deciding to pay the sufferer from damage directly in money or in goods warrants, would the claims of creditors to whom the damaged objects were pledged, have to be first satisfied.
            The matter would have to be examined whether any loans eventually granted to sufferers from damage are adequately secured by present legislation. in any case, so far as its repayment claims are concerned, the society should have precedence of every other claim, including taxes.
A law should furthermore make it incumbent on the societies to form right from the beginning a federation and this federation should be invested with the legal powers necessary for the due performance of its functions.
The introduction of special insurance contract legislation need not be contemplated initially. But the following would be advisable. Every society should set up an arbitration council which is to decide in case of differences arising between the society's management and the members, this always on grounds of equity and allowing for public susceptibilities, there being in Mohammedan regions very generally no hesitation to respect the ancient Sheriah. The decisions of the various committees should be from time to time, at least once a year, collected and published. After some years or decades these decisions would furnish a good basis for creating in every country concerned an appropriate insurance contract code. The federation might be entrusted with the collection of the decisions.
          In enacting laws and issueing edicts, the rule of Jefferson, one of the founders of the United States, should-be observed, namely, that every law and edict should run for a stated length of time only. In principle, every generation should make its own langs. A country's constitution should provide that, in respect of every law over 60 years old, any judge may publicly declare that in his decisions he would not apply it. but pronounce judgment pursuant to other principles which he would have to make known publicly. The highest judicial court might thee, if it deemed it necessary, express its views on the subject. Litigants would be naturally entitled to submit their dispute before a court still ready to express judgment according to the old law and the demand of only one of the partjes to the suit would have to suffice in this respect That the view that all suits ought to be dealt with according to a uniform law is based on a wholly unjustified prejudice has been shown by one no less eminent than Savigny? In his work "Vom Beruf unserer Zeit fuer Gesetzgebung und Rechtswissenschaft", first edition 1814, new issue Freiburg i/B, 1882, which is as yet far from being obsolete.

249   VI. I N S U R A N C E  O F  N O M A D  T R I B E S
The establishment of a system of l i v e s t o c k i n s u r a n c e for nomad tribes would be of great social, econohic, and even political importance. How frequently has it not happened that a plague has annihilated the herd of a tribe, its only possession, and that it then reluctantly became a tribe of robbers whose predatory raids called forth large-scale military measures.
It is by no means improbable that the migrations of the nomads under Attila, Jenghiz Khan, and Timur originated in, and were prompted by, devastating cattle plagues and the famines resulting from these. This incidentally suggests that the bad fodder harvest in 1786 in France, practically ignored by historians, compelled multitudes of peasants to slaughter their cattle and was one of the causes why three years later the Revolution assumed even greater violence in many rural districts than in Paris (See lavoisier's work, dating 1786, "la disette des bestiaux" (The Cattle Scarcity); in Guillaumin's col lect~on of Lavoisier's economic writings, p 6). These writings prove that Lavoisier was not only the greatest chemist of his day but also a profound and far-seeing economist He deserves mention here because he is one of the few who before Milhaud had seen that the question of debt and tax payments is not only a ouestion relatino to the  d i s t r i b u t i o n  of the social product, but at least as much a question of  m e a n s  o f  p a y m e n t. Consult his plan for establishing a provincial bank of issue, p. 20 of Guillaumin's edition.
Every Government in Asia has to take care that the herds of the nomade should be kept in being or rep laced if destroyed by an epidemie. Of course,livestock insurance as practised in Europe is not practicable in Asia. But what is possible and not too difficult to carry into effect is  m u t u a l  c r e d i t  a i d  among nomad tribes. let us suppose that a tribe has lost 10.000 camels owing to an epidemic. ln such case it should be possible, on the basis of prior arrangements, for this tribe to approach the other tribes in the country and ask them, following a previously fixed distribution formula to  l e n d  it that number of camels. Suppose the tribe undertook to return annually 1100 camels for 12 years, this would correspond to nearly 4 % annual interest for the lenders. If the tribe returned 1.000 camels annually for 15 years, this would signify an interest rate of almost exactly 5 %. The restitution conditions should naturally be fixed in such a way that, on the one part, the paying capacity of the tribe should not be exceeded and that on the other, the lending tribes should have no undue burden placed on them. In partitioning the loan among the several lending tribes, mathematical exactitude cannot naturally be aimed at The committee entrusted with the execution of the kind of cattle insurance proposed here; will perhaps fix the quota of one tribe at 80 camels, whilst in the opinion of the tribe concerned, 60 would have been a fairer number. If, however, the repayment conditions are not too unfavourable for the lenders, the tribe that would have preferred to lend 60 camels,would not mina much lending 80 instead. The increased interest would wipe out the disadvantage.
It would be desirable to anpoint a special committee for organising the proposed tribal livestock insurance Possibly the most highly respected ministers of religion of every tribe would undertake the preliminary labours.
Here also the system of purchasing certificates will gradually come to be app lied Instead of contributing 60 camels in n a t u r a, a tribe wi ll contribute as many purchasing certificates as would be required to buy from it 60 camels. Il corresponding process would be employed in repaying the loan. But many tribes are so isolated economically that, apart from trifles, they neither buy nor sell. The purchasing certificate, however, presupposes an econom~c domein of buying and selling. Still, it may be assumed that the economie isolation of so many nomad tribes in Asia is, in fact, due to lack of means of payment in their regions. Thus the introduction of the certificates would greatly accelerate the tribes' joining in the general exchange of goods. Nor is this all. Many tribes only live as nomade because year by year the taxalion system of their country has hitherto endangered the existence of the peasantry. Every year peasants who cannot pay their taxes in the prescribed means of payment, take refuge among the nomads, These experiences naturally do not intensify the desire of the nomade for a settled life. given however permission to pay the taxes in purchasing certificates manv nomads and probably the larger tribes would settle down. The problem of insuring the nomads would then assume 250 a quite different aspect. To-day the number of nomade in iran amounts sti ll to about 2 million These furnish easily 200 000 warriors of finest mettle, who in reality only obey their tribal chiefs - a peimanent end grave danger, end this not for Iran only.

VII. C O - O P E R A T I O N  W I T H  A  C O U N T R Y ' S
P R I V A T E  I N S U R A N C E  O F F I C E S

Such collaboration will become practicabLe end also advantageous for both,pubLic end private offices. Once the public societies have awakenedan understanding of insurance matters in the population, many persons wilt conceive the idee, which would have remained foreign to them otherwise, of insuring in private offices property of theirs not subject to compulsory insurance in public societies.
In numerous cases a private office would be able to grant a co-insurance to public offices. Suppose that in a district of 100,000 inhabitants the capital of which has a population of 20.000, the artizans end merchants owning the bazaar of the district centre, insure their supplies and the bazaar itself at the district society perhaps the society's way of colecting contributions appeals to them. Still, it might happen that the object is too large for the society end that for certain reasons it is not possible to secure a co-insurance with other public societies. In such case a private office will perhaps be able to take over a sufficiently large portion of the risk to allow the remainder to be borne without danger by the public society. Of course the 'private office would then have to adopt the same method of collecting contributions 'as that employed by the public society, This will not prove difficult particularly 'where a large bank collaborates in the collection of contributions in the manner previously indicated end where this bank is also the bank of the private office.


6erman end Swiss experience have shown that the operations of pubLic insurance societies cen be conducted with notabLy greater success through founding a federation. AccordingLy, aLready after the establishment of a second society in a country, a fe3deration shouLd be formed, end any society subsequentLy estabLished shouLd become a '`member of the federation on starting.

The federation may prove particuLarly useful in catastrophes. For instance, in case of serious earthquakes, the federation may order the societies in districts not affected by the misfortune to raise at once a loan in favour of the stricken districts. The Loan should be partitioned among the societies on the principLe that the share of ' each society was a loss that had occurred in its own district. Suppose that an earth'quake at Tabriz caused damage to the vaLue of 100 million rials. It follows that the share of the Bushire district would be 2 million which amount therefore the Bushire 'society would have to lend the Tabriz society. Bushire then acts as if there had to been a Loss of 2 Million  rials in its own district end imposes a correspondi ng contribution. The resulting proceeds it will transmit to Tabriz. In the case of such large amounts, by far the biggest part wilt probably be paid in goods warrants. These goods warrants will flow back very rapidly to Bushire because the affected societies will with these goods warrants buy in Bushire what thev are in need of. This is a primitive method, but it has the advantage that it cen be reaLized in a few days, that it does not disturb the country's monetary circulation, end that ii enab tos reaL aid to be rendered prompt ey out of the country's stock of goods end not out of its reserves of money.
The loan might be repaid in equal instalments in 25 years, say quarterly 1,5 % for interest end redemption. This would be eouivaLent to aLmost exact ey 7/8% quarterLy interest. The repayment wouLd be natura-Lty in goods warrants which, according to the system here described, would be accepted in Lieu of ready money in the Tabriz district.
Ways will somehow be found to utilise the goods warrants in favour of the "creditor societies' perhaps through the help of a large bank. The repayments from loans ror losses due to catastrophes might perhaps serve to build up gradually a reserve fund for the federation of the several societies.

Outside Japan Asia possesses as yet no adequate insurance statistics However, after the establistment of public insurance societies, abundant statistical material would soon become available. The proper centre for the elaboration of this material would be the federation. The European federations of public insurance compani es have also successfully started the elaboration of insurance statistics of great practica! i mportance.

The federation should publish a monthly in the country' s language end also in English or French. Such a periodical would help to disseminate the experiences of the several societies among all interested partjes end would aid in detecting dangers, removing every kind of crudity, end revealing the resistance encountered by the insurance idee within the country.

IX. C O N C L U D I N G  R E M A R K S
Public opinion in the United States end France, in Russia end Japan in Germany end Spain, is certainly not agreed as to the na-ture end functions of the State. But perhaps ~n all countries public opinion recognises that it is the duty of the State to protect the individual, if he cannot protect himself, in the possession of property which the State regards as lawful. Accordingly, theft is as severely punished in Russia as in Italy or anywhere else.
Indeed in many countries even the right of animale to life end not to be made to suffer afftictions wantonly is acknowledged by the State end cruelty to animals is punished most severely perhaps in Germany end England (fhe decree issued in November 1935 by Minister Goering calling on all metorists to look out at night for game crossing the highways, must have given great pleasure to friends of animale all the world over. Such a decree accords well with the mentality of the German people end suggests to many individuals reflections, actions, end abstentions in spheres unrelated to the prolection of animals, whereby the sum of suffering in human society is reduced end indirect forces in favour of progress are released, forces which would otherwise have been frittered away in the sordid struggle of daily life.
The protection of`property carries with it undoubtedly p r o t e c t i o n  b y  i n s u r a n c e for everyone whose property, earnings, health end life are menaced by fire end other accidents against which insurance is possibie. The average man, it is truc, frequently does not appreciate the advantage of protection by insurance end imagines that he may escape dangers through "prudence.. He has not the vaguest idee of the law of large numbers, according to which among a rillion of the most prudent individuals there occur nevertheless a certain number of fire-losses every year a certain number of thefts varying little from year to year, end even the number of broken limbs,of blinded eyes, of square feet of epidermis annihilated, and much other misfortune' repeats itself in about the same proportions almost every year - a circumstance the philosophical import of which obtrudes itself on everybody.
( Nobel, the inventor of dynamite, was so much distressed by the many terrible accidents in his works that his friends feared that he might lose his reason. Nobel regarded himself as the cause of the death of many men end this weighed on him exceedingly. But later he learned that for decades the number of injured workmen per 1.000 tons of explosives had remained about equal in all countries end that this proportion was scarcely affected by his factories. This gave him courage as he recognised that he had mi stakenly made himse lf responsib le for the activity of demonic forces wholly independent of the individual, This, of course, did not prevent him from carrying out his generous resolve, taken during the period when he was deeply depressed, of founding the Nobel prizes. )
But already some two centuries ego the recognition of the essential meaning of the law of large numbers decidedly changed the basic religious outlook not only of individuals here end there but of numerous educated persons. This change also gradually made itself felt among the general eopulation end we have as yet by no means seen the last stage of this process of religious change. The movement started spontaneously in several European centres almost at the same time The statistics of the brave Breslau prior, Kaspar Neumann, deserve special mention here. By examining 5.869 cases of death that tuck place in Breslau from 1687 to 1691, he wished to ascertain whether the rules of astrology (which has no fewer supporters to-day than it had then)were justified according to which at the death of any person the sun is mostly in opposition, in quadrature, or in conjunction to the position it had occupied at birth. He found no greater correspondence than was to be expected a  p r i o r i  on the basis of chance but at the same time discovered uniformities of a quite different order such as modern statistics reveal. Neumann's investigation has been probably by far the most comprehensive of its kind down to to-day and is, moreover, unknown lo preseni-day astrologers. The famous astronomer, Halley, constructed out of the material furnished by his friend Neumann in 1693, the first mortality table which is still indispensable for knowing the mortality at that period - and thereby leid the foundations of the science of vital statistics. In contrast to Neumann, other priests were strongly biased against the application of mathematica to the phenomena of hufflan life end were afra~d - from their viewpoint rightly so - that in future peopLe would appraise the va Lue of prayers for averting mi stortune different ly from the past, when they once learnt that the sum of misfortune is roughly constant if external circumstances remain unchanged end that this very fact may be taken advantage of by insuring against it. They say that.....once upon a the reign of Frederick the Great a pastor  preached against the practice of insurance and denounced it as rebellion against the decisions of Heaven which from time to time meted out punishment to men for their sins by conflagrations end the like. It rained after the service was over end the preacher was returning home protected by his umbrella. One of his flock utilised this for applying  the  r e d u c t i o  a d  a b s u r d u m  argument to the preacher. He abruptly closed the preacher's umbrella and admonished him to resign himself to the celestial decision which manifestly was intended to wet him through and through that day. Among ministers of religion (clergy for short) the hostile attitude to insurance continued for a long time end even in the nineteenth century a large missionary society used to refrein insuring commodities sent to the heathen. It confined itself to having a blessing pronounced on them by one of its staf.f. Unfortunately, the society issued no statistics as to the success of this method, ) o the credit of the clerqy it should be stated however, that it changed its viewpoint subsequently. To-day The clercy forms an important agency for the spread of insurance. ln United States churches the preacher not only calls with some frequency on his congregation to leed a morel life, but also stresses the point that it is sinning against oneself, against one's family,' end against the community not to be adequately insured.
           The preceding remarks are appropriate here if we consider that in many parts of Asia, e g , in Iran the influence of the clergy is not less than it was two centuries ego in Europe end that, moreover, in sundry Asiatic countries the clergy alone are able to undertake the writing indissoluble connected with a system of insurance servinn various sections of society (It is stated that in many regions of Iran which of itself is a highly cultured country, nineteen-twentieth of the population cen neither read nor write.) It is therefore of great importance to win over the Asiatic clergy to the need of insurance.  In fact, the clergy should be invited everywhere to collaborate, e g., in the collection of contributions in assessing damage, end in fixing insurance amounts, The remuneration for this help should not be ungenerous,especially as the Mihaud system of payment furnishes ample means for this.
The extensive conflagrations at Muhammera in 1935, where the bonded warehouse was destroyed, end at Teheran where the bazaar one of the largest end most beautiful in the East, was burnt down (end where the young Teheran fire brigade did splendid work), showed that Iranian merchants more particularly were to a remarkable degree  u n i n s u r e d. The reason lay not only ~n the great difficulty for them of paying prem~ums  i n  c a s h, but also largely in religious prejudice. Just as has 253 happened formerly in Europe with pious Christians, many Mohammedans refuse to-day to p u r c h a s e  f o r  m o n e y the protection which they regard as the mercy of heaven This prejudice would not only be overcome by the collaboration of the clergy in insurance matters but also through the f o r m  of the insurance system. The same Mohammedan who will not  b u y  with money protection against fire or help for his family in the case of a death and who - like not a few in Europe- calls the private insurance companies usurers who enrich themselves by the misfortunes of the people (to read a report of such a company, which would at once disabuse his mind,would not occur to him), has no objection to an organisation for  m u t u a l   a i d   i n   m i s f o r t u n e, an organisation not peremptorily demanding payment in  m o n e y, although  a d m i t t i n g  it, end which, in a manner not exceeding the comprehens,on of the people, only asks as contributions such  m a t e r i a l  v a l u e s  as the insured  p o s s e s s e s  or  s e r v i c e s  he cen renden The plain man in Asia must gain this impression of insurance, and will gain it. if the insurer is a public society based on mutuality,  not too large, end applies the Milhaud system of payment.
Moreover the Mohammedan common law expressly declares it to be within the competence of a government, nay its duty to collect in the case of qreat disasters a religious tax from the faithful for the sufferers from damage, a tax which may be paid in material values Mohammedan jurists have carefully and ably built up the  z a k a t  theory and this may well form a legal basis for the introduction of public insurance in-Mohammedan districts. Mohammedan teachers of State right are accustomed to make allowance for different  m e a n s  o f  p a y m e n t  when there is a shortage of ready money although they have not reached as yet Milhaud's standpoint. Here they differ to their advantage from the Roman legal theorists,since the latter presupposed as a matter of course an adequate provision of the economy with means of payment, apparently not one of them, from Justinian onwards, having reflected whether this presupposition is always concretely fulfilled Hence not one of them made a specie investigation into the legal aspect of the circumstances marking economic crises Chinese, Japanese, end Indian economie literature also does not seem to record inve tigations respecting the special dutjes arising for a judge an employer a tax collector, end astatesaan when a general shortage of means of payments sets in. During depressions the Roman jurists either asked for the property of an insolvent deblor to be seized and ruthlessly transferred by way of a public auction to the fes who still possessed ready money, or, if the deblors revolted, they declared a moratorium end thereby injured the creditors not less than they had previously injured the debtors. It was far from the thought of those jurists to seek to escape from the meshes of the legal forms they had themselves spun, not even so far as definite, abnormal cases were concerned. Noi so with the Mohammedan jurists. Althounh in civil law they maintained that liabilities expressed in money must be settled with money thev have nevertheless in the matter of fiscal law endeavoured to respect the property of tax deblors during local or general crises in means of payment. To illustrate Muhammedans discuss the point whether, if the zakat debtor owes the value of a streep as zakat, but can only give the tax collector a camel in payment, the latter is bound to give ready money in change of the difference in value. The prevailing opinion is that the tax collector m a y do this, but that the ruler should not  o b l i g e  him to do it. (See the already cited work by Aghnides, 'Mohammedan Theories of Finance'.) However, in recent years the "central bank of issue theory' has also be un to gain supporters in Asia. This theory is based on the view that a State should ge regarded as sufficiently - or even as too abundantly - provided with means of payment when  a b r o a d  there are the first signs of a discount of the notes or of the cheques of large banks, but at the same time the centra l bank of issue is short of the means to support the exchange. Whether at the same time in many localities within the country itself (as frequently happened in Germany before the 1933 Revolution, especially before end after the crisis of 13 July 1931) pigs were b a r t e r e d for tobacco ( as on the Congo ), and cabbages for petrol, was regarded as not worthy of notice The German crisis of July 1931 offers a serious earning to the statesmen of Asia not to expect more from their country's central bank of issue than it can properly offer. 254
Probably in no country does money "roll" more rapidly than in Germany with its good commercial faciiities. It transpired nevertheless that it does not suffice liberally to change the bills of exchange of a Berlin or Munich manufacturer for notes (that is, to discount the bills), in order that Thuringian villages end Bavarian forest districts may have sufficient notes in circulation. All the more a central bank of issue will not meet the situation in Asiatic countries. The fact that a Shanghai tee merchant has his bill of exchange discounted, does not furnish the Shantung peasant the means of payment he nceds for paying his taxes end leases, never mina how frequently the bank of issue maintains the contrary.
              Before the Civil war, the United States were much nearer to havina a sound monetary system, The country was not supplied by a bank holdinq a monopoly, but, end this is generally forgotten, several thousand banks of issue helped to convert districts culturally in every respect inferior to the steppes of Iran end Mongolia, into a civilised land superior in numbers, weapons, end education to the land of the Pharaos The monetary conditions in the United btates prior to 1863, when, during the civil war end relying on a force of several hundred thousand soldiers, the private banks of issue were abolished (this would have been impossible in peace times), raise the question how many centres of issue a country really nceds. This question is easily answered.
If we remember that means of payment based on clearing end the centres of issue here involved (banks of issue, credit banks, issuing cheques, clearing houses) are for the c o n s u m i n g  p o w e r  of a country what machinery end engineering works are for its technical p r o d u c i n g  p o w e r s, namely that which originally m o b i l i s e s these powers, the question presented assumes at once a much more exact form. That is, it is seen that we should not ask: How many issuing centres does the country need? or: How many issuing centres should be  a t  t h e  m o s t allowed?, but rather "How many centres of issue will the country  b e a r  w i t h?'`
So long as in a country labour power remains unused the harvest of the fjelds is rotting in the barns, end peasants weave their own cloth while in the towns the rooms are at a standstll. centres of issue are  n e e d e d, for  o n l y the issue of conveniently divided end standardised means of payment based on the obligation of possessors of material values or of creditors to accept these means of pavment at Dar end further based on orders to the value of the issued means of payment, - o n l y such an issue cen exchange labour power for the harvest of the fjelds end the cloth of the townsman for the wool of the sheep-breeder. And if only ten willing end capable ~orkers find that they cannot exchange their labour power for provisions end for clothing, whilst foodstuffs are deterioratinq in the shops end garments are being eaten by moties a statesman should encourage these ten men to establish an issuino centre, since those which exist manifestly do not suffice for them, end he should also teach these ten how to proceed in the matter. (It cannot be sufficiently repeated: First: by informing an employer who produces currently required articles, e.g informing a farmer that they are ready to work for him end that they would not ask for c a s h wages but would be satisfied to be paid with their employer's purchasing certificates, perhaps also receiving an equitably larger wage than would be paid in cash Secondly: by simultaneously going the round end inquiring which shops would be ready to accept tne purchasing certificates in keu of monev, The ten would then buy where they found a response, Thirdly: if 1 end 2 should not be practicable right away, to form themselves into a cooperative society, to rent a closed down or only partly utilised factory to pay the rent with their own purchasing certificates end, further making it puolicly known that they are ready to buy raw materials with certificates end to sell their output to purchasers for such certificates. And Fourth: by inviting all who are similarly situated to join with them, also by asking the local authorities to institute a clearing centre that might facilitate the spread of the system)
Experience in the United States showed that as soon as the least trading begins there immediately a great demand for numerous local issuing centres develops. Thus in 1852, rural Rhode Island had a bank of issue for every 2.000 inhabitants (roughly for every 500 families). Pennsylvania, which in 1850 was already an industrial end commercial centre, naaf, on the contrary, only one bank of issue for every 40.000 in 255 habitants, (Carey, "Lehrbuch der Volkswirtschaft', German translation by Adler, p 452) The dependance of the number of necessary centres of issue on the transport conditions of a region orl'what amounts to the same thing, the dependance of the maqnitude of an issuing centre on the decand in its vicinity will become clear if we consider that in case of a trede panic it should be possibte for the notes, goods warrants, etc. to flow back within a few hours to shere they  m u s t be accepted at par. In China, where there are thousands of banks of issue it may therefore happen that the notes of a bank are only accepted in a certain quarter of a town end nowhere else, the particular banker being unknown in any other place. But in  h i s quarter it is perhaps only  h i s notes that allow rents being paid, shoppinq being done, etc. ife should remember that in many Chinese towns, with their dirty roads impassable in rainy weather, where no tramway or underground raileay exists two relatively adjacent quarters are farther removed from each other in accessibitity than Bronx is from-Manhattan Junction (which is situated in the centre of Brooklyn) in New York -a distance of about eight hours for a pedestrian. Hence the large number of banks of issue now necessary in China is destined to diminish in pronortion that transport facilities improve In any event, no statesman in Asia should be frightened at the thought that after a population has been granted the right to issue notes every vi llage may possess its own issuing centre end that only after years or decades- to the extent that our statesman facilitates transport - would their number may tee, however, that even in the more highly developed regions of Asia one centre of issue for every 50.000 inhabitants might be necessary, as formerly in Pennsylvania end in Scotland, in order that in case of mistrust arising, no holder should have to go far to convert his notes into goods or services, end also so as to render the economy indedependent of the money market.
The number of issuing centres in the United States might have been smaller (or their issues less extensive) if the Federal Government, the several States end the municipalities had issued discountable paper money, every centre to the amount perhaps of one-quarter of its tax revenue end if the railways end navigation companies had also issued notes on the model of the leipziq-Dresden Railway a century ego ( For particulars see Dr. Zander' s paper on "Railway Honey", in the Annals., 1934, This is found as "exit monetary chaos" in my guest appearances (piet)) We may remark here that the liberty enjoyed by the American people at that period to provide themselves with their own means of payment did not suit certain persons and that therefore the United States press contained stupid attacks on the banks of issue almost daily. An able criticism of these attacks will be found in Horn's work "Bankfreiheit" ( German edition Stuttgart, 1867; French edition under the title "liberte des banques", Paris, 1866 ). The general public was mainly misled by every case where a bank of issue was unable to  r e d e e m its notes in silver or gold being at once taken as proof that the bank had become  b a n k r u p t. To-day, enlightened by Milhaud's writings one would say that the redemption system failed end spontaneously converted itselt into a system of unredeemable  p u  r c h a s i n g   c e r t i f i c a t e s, realisable in goods or services by the bank' s debtors, without, however, this transformation being clearly recognised at the time (The old terminology was not equal to this. Still, W.B. Greene's remarks on convertibility in his "Mutual Banking" (Boston, 1870), are even to-day worthy of our attention. Greene pointed out that the notes of the banks alleged to be bankrupt -continued to circulate and that the banks continued to pay dividends.)
A future science of economics will regard it as a principle of economie morality that no one shall be entitled to secure means of payment from other economie spheres, most particularly not through the method of underselling, as long as his creditors are ready to accept his oen means of payment at par. Such a morality would sharply contrast with the monetary morality of communism, The proceedings taken in Russia in 1935 against the issuers of emergency money ( e.q" in Pensa ) show that there the principle holds unchanged : "Even if the central bank of issue proves itself wholly unable to provide the industrial centres with means of payment for paying wages (to say nothing about other means of payment) even if the, workers, to avold grim hunger, fly from those centres as from pestilential regions; and even if in the consumer's co-operatives ot those localities tne goods, because they are not called for, deterriorate, 256 just as in the West - even then no factory manager no municipal administration, and no mine has the right to remunerate the workers with conveniently divided end standardised notes entitling the holders to claim the stored foodstuffs". then in those deplorable circumstances the monopoly of the Moscow central bank of issue must be respected. (But the ill-treated population m a y suspect individual engineers or clerks to have deliberately engendered the shortage!) the issuers of emergency money are accordingly imprisoned for "forgery". It may be granted, however, that for a communisticaly organised totalitarian State the emancipation of its subjects from the central bank might welf be the beginning of the end Moreover, the issue of inconvertible, standardised bonds is by no means a complicated affair. in any case, it is far similar than the issue of  r e a l  forged money end makes greater demands on the honesty of the issuers than on their business capacities. This is confirmed by the history of the banks of issue in the United States, although or precisely b e c a u s e, before the Civil war these notes were redeemable in metal. The thousands of American rivate banks of issue prior to 1861 were frequently established by humbLe folk- workers peasants, tradesmen (see "Annals', 1935, p. 217 or page 177 of this series) who frequently could not spell correctly end were uncertain how to multiply two three_ figured numbers. This is the more noteworthy seeing that for the issuers ot paper money redeemabLe in metal the complications are much greater (The large-scale banks of issue in the East bied not infrequently to rid themselves of the unwelcome competition of small banks in the villages by collecting the notes of the latter end then suddenly presenting a large number for redemption, especially if they knew that the small bank's metal reserves were low. The peasants protected their bank by simply whipping the agente of the Large-scale banks out of the village.) After impartially weighing the circumstances, the conviction is bound to ripen that the issue of inconvertible purchasing certificates, more particularly in the limited domein of an insurance society does not make too great a call on the intelligence of the individuals concerned in Asiatic countries. The contrary view would involve a considerable underestimate of the intelligence of Asiatics, which according to the unanimous reports from travellers, is in no Asiatic country below that of any European people, not even where general  e d u c a t i o n  is utterly neglected. Hence it does not by any means follow that in Asia there is only the choice between primitive payment in kind and payment in money.
If in commercial and public payments in Asia deliveries in kind are frequent, we need not conclude that Asiatics have always uncritically accepted the system of payments made in kind. On the contrary, for ages owing to the abuses to which this system is inevitably subject, it has been severety criticised and if it has nonetheless been retained it has been only because a system like Milhaud's was as little known in Asia as anywhere else and because ready money was not available, As proof that payments in kind are disliked in Asia and that therefore the veil is welt pregared for a system dispensing with them but not requiring ready money, may be taken the line of reasoning in Hassan Naf icy' s work on taxation in Iran. Here is an example from his volume: In the case of a tax assessed in cereals and collected as recent ey as ten years ego, this law permitted a "tara" of 5g. The tax collectors exploited this by compelling the peasants to deliver them cereals of a good quality end unadulterated end then mixed this with up to 3% of impurities after having first abstracted for themselves an equivalent proportion of good cereals. That the cereals lost thereby their value for the Government' left them cold. Owing to a general shortage of means of payment Iran was more heavily burdened with taxes ten years ego than any other country; but the central government nevertheless received only the equivalent of about 4 Swiss francs p e r  c a p i t a.  Despite the prevailing abuses, the Turkish Government received before the War about 22 to 23 Swiss francs' as much as Frederick the Great in Prussia. The revenue of the Iranian king Yesdegerd, prior to the Mohammedan conquest, may be apparent ey estimated as of the same amount, that is if we assume that the country was populated to the same degree as it is at present (See Naficy's volume).    near the end of 256

part 5 continues the second half of these 'concluding remarks',