Chap 10c, Part I: Insurance, Retail

Insurance Risk

31 The chance of loss is frequently under-valued and rarely valued more than it is worth.

  • This is proven by the very moderate profit of insurers.
  • To be successful in insurance, the common premium must:
    • be sufficient to compensate the common losses
    • pay the expence of management
    • afford a profit equal or bigger than other businesses using the same capital.
  • Paying this premium pays the real value of the risk or the lowest price of insurance.
  • Although many people make a little money by insurance, very few have made a great fortune.
    • Profits are not more advantageous in the insurance trade, than in other common trades.
  • Many people despise risk so much that they pay for insurance.
    • In Great Britain on the average, 99 homes in 100, are not insured from fire.
  • Sea risk is more alarming to people so more ships are insured compared to homes.
    • Although many sail even in wartime prudently without any insurance.
    • When a great company or merchant, has 20-30 ships at sea, they may insure one another.
    • The premium saved on them all, may more than compensate potential losses.
  • The neglect of shipping and home insurance in most cases is due to thoughtless rashness and contempt of the risk.

32 The contempt of risk and the presumptuous hope of success, are most active at the age when young people choose their professions.

  • The little fear of misfortune is then capable of balancing the hope of good luck.
  • This is more evident in those enlisting as soldiers or those going to sea, than in those entering the liberal professions.

33 Young volunteers enlist most readily at the start of a new war.

  • They fancy acquiring honour and distinction which never occur.
  • “These romantic hopes make the whole price of their blood.”
  • Their pay is less than that of common labourers though their actual service and fatigues are much greater.

34 The lottery of the sea is not so disadvantageous as that of the army.

  • A son of a creditable labourer or artificier might join the navy with his father’s consent.
    • But his father will never allow him to enlist as a soldier.
    • Only the son sees anything to be made by being a soldier.
  • The public has less admiration for a great admiral than a great general.
  • The greatest naval success promises lesser fortune and reputation than equal success in the land.
    • The same difference runs through all the inferior ranks in both.
      • A naval captain has the same rank as an army colonel.
      • But the captain does not rank with the colonel in the common estimation.
  • As the great prizes in the lottery are less, the smaller ones must be more numerous.
    • Common sailors, therefore, more frequently get fortune and promotion than common soldiers.
  • The hope of those prizes principally recommends the trade.
  • The skill, dexterity, hardship, of sailors are much superior to that of artificers.
    • However, their only additional recompence is the pleasure of exercising their skill and surmounting their hardships.
    • Their wages are not greater than those of common labourers at their home port.
    • Their monthly pay is more the same with other workers in those ports their ships sails.
  • London is the port from where the most ships sail.
    • It regulates the wages of all other ports.
  • At London, the wages of workmen are double those at Edinburgh.
    • But sailors sailing from London seldom earn 3 or 4 shillings a month more than those sailing from Leith, a small difference.
  • In peacetime, the London price is from a guinea to about 27 shillings monthly.
    • A common labourer in London, at 9 or 10 shillings a week, may earn 40-45 shillings in a month.
  • The sailor is supplied with goods over and above his pay.
    • Their value, however, may not always exceed the difference between his pay and that of the common labourer;
    • Any excess will not be clear gain to the sailor, because he cannot share it with his family, whom he must maintain with his wages at home.

35 The dangers of adventures seem to encourage instead of discourage people.

  • A poor tender mother is often afraid to send her son to school at a sea-port town.
    • The sight of the ships and the adventures of the sailors might entice him to go to sea.
  • The prospect of hazards is not disagreeable to us.
    • It does not raise wages in any employment.
  • It is otherwise in employments where courage is useless.
    • In very unwholesome trades, wages are always high.
    • Unwholesomeness is a kind of disagreeableness.
      • It affects wages.

36 In all employments, the ordinary profit rate varies with the certainty or uncertainty of the returns.

  • Generally, the inland trade is more certain than foreign trade.
  • Some foreign trade is more certain than other foreign trade.
    • The trade to North America is more certain than the trade to Jamaica.
  • The ordinary profit rate always rises with the risk.
    • It does not seem to rise with it to be able to compensate it completely.
  • Bankruptcies are most frequent in the most hazardous trades.
    • Smuggling is the most hazardous trade.
    • It infallibly leads to bankruptcy.
  • The presumptuous hope of success entices so many adventurers into those hazardous trades.
    • Their competition reduces the profit below what is sufficient to compensate the risk.
  • To compensate it completely, the common returns should:
    • Make up for all occasional losses
    • Afford a surplus profit, the same as the profit of insurers.
  • If the common returns were sufficient for all this, bankruptcies in smuggling would just be as frequent as in other trades.

37 Only two of the five circumstances affect profits:

  • The agreeableness or disagreeableness of the business
  • Its risk or security

There is little difference in most employments of stock in terms of agreeableness or disagreeableness.

  • There is much difference in the employment of labour.
    • Ordinary profits rises with risk but not proportionally.
    • Ordinary profit rates in different businesses should be and are more on a level than the wages of different occupations.
  • The difference between the earnings of a common labourer and a lawyer or physician is much greater than between the ordinary profits of two different businesses.
    • The difference in the profits of different businesses is generally a deception.
      • It arises from not always distinguishing wages from profits.

Wages in the Pharmaceutical Industry [Apothecaries]

38 ‘Pharmaceutical profit’ denotes something uncommonly extravagant.

  • This great apparent profit, however, is frequently no more than reasonable wages.
  • The skill of an pharmacist is a much nicer and more delicate than that of any artificer.
  • The trust reposed in him is of much more importance.
  • He is the physician of the poor in all cases.
  • He is the physician of the rich when the distress is not very great.
  • His reward should be suitable to his skill and trust.
    • His reward is in the price of his drugs.
  • All the drugs the best pharmacy will sell in a large town may not perhaps cost above 30-40 pounds a year.
  • If he sells them for 300-400 pounds, or at 1,000% profit, this may be the reasonable wages for his labour charged on the price of his drugs.
    • Most of his profit is actually wages.

Groceries and Retail

39 In a small sea-port town, a little grocer will make 40-50% from a stock of 100 pounds.

  • A wholesale merchant in the same place will make 8-10% on a stock of 10,000 pounds.
  • The trade of the grocer may be necessary for the conveniency of the inhabitants
  • The narrowness of the market may not admit a larger capital.
  • Man, must not only live by his trade, but live by it suitably to the qualifications it requires.
  • Besides possessing a little capital, he must:
    • be able to read, write, and compute
    • be a tolerable judge of 50-60 sorts of goods
      • This includes knowing their prices, qualities, and the markets where they are to be had cheapest.
  • He must have the knowledge of a great merchant.
    • Only his lack of capital hinders him from becoming one.
  • 30 or 40 pounds a year is not too big a compensation for a person so accomplished.
    • Deduct this from his great profits and little above ordinary profits remain.
    • A majority of his apparent profit is real wages.

40 There is less difference between the apparent profits in retail and wholesale in big cities than small towns.

  • If a grocery owner employs 10,000 pounds, his wages must add very little to the real profits his great stock.
    • In a big city therefore, the apparent profits of the wealthy retailer are more on a level with the profits of the wholesale merchant.
  • Retail goods are generally cheaper in big cities than small towns.
    • Grocery goods are generally much cheaper
    • Bread and meat frequently as cheap.
  • This is because the prime cost of retail is the same in big cities and rural villages.
    • It costs no more to bring grocery goods to a big city than to the rural village.
    • But retail profits are smaller in big cities because the bigger market of the city gives employment to more stocks.
      • More stock employed lowers profits.
    • Even if the prime cost of retail bread and meat is higher in big cities than rural villages, its smaller profits make it as cheap as those in the rural villages.
  • The prime cost of wholesale goods, such as corn and cattle, is bigger in big cities than rural villages as they must be brought from farther away.
    • This is probably why the price of bread and meat are nearly the same in parts of Great Britain while the prices of corn and cattle are different.

41 Though profits in both wholesale and retail trade are generally less in big than in small towns, great fortunes are frequently gained from small beginnings in big cities and rarely in small towns.

  • In small towns and rural villages which have a small market, trade cannot always be extended as stock extends.
    • Though a person there may have high profit rates, his total accumulated profits can never be very great.
  • In big cities, on the contrary, trade can be extended as stock increases.
  • The credit of a frugal and thriving man increases much faster than his stock.
    • His business is extended with his credit and stock
    • His total accumulated profits is extended with his business
  • Great fortunes are seldom made even in big cities by any one regular, established, and well-known branch of business.
    • Great fortunes are created instead from a long life of industry, frugality, and attention.
    • Sudden fortunes are sometimes made by speculation.
  • The speculative merchant has no regular, established, or well-known business.
    • “He is a corn merchant this year, and a wine merchant the next, and a sugar, tobacco, or tea merchant the year after.”
    • He enters into businesses likely to be profitable and quits it when its profits are likely to decline.
    • His profits and losses, therefore, are not as regular as any established and well-known business.
  • A bold adventurer may sometimes gain a big fortune by two or three successful speculations.
    • But he  is just as likely to lose by two or three unsuccessful ones.
  • Speculation can only be done in big cities.
    • Only big cities have the extensive commerce needed for speculation.

Next: Book 1, Chapter 10D: Inequalities in Employments

Words: 1840

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