The nature of capital and income

Bibliographic data

Monograph

Identifikator:: 102659555X

URN:: urn:nbn:de:zbw-retromon-82920

Document type:: Monograph

Author:: Fisher, Irving http://d-nb.info/gnd/118533541

Title:: The nature of capital and income

Place of publication:: New York

Publisher:: The Macmillan Company

Year of publication:: 1923

Scope:: XXI, 427 Seiten

Digitisation:: 2019

Collection:: Economics Books

Usage license:: Get license information via the feedback formular.

410 NATURE OF CAPITAL AND INCOME operations need be done by rule of thumb. But at present all but the first and often even that are left to the merest im- pression. There was a time when business men did not use bond tables, when they did not calculate cost sheets, and even when life insurance was contracted for in scornful disregard of any mortality tables. Just as these slipshod methods have been displaced by the work of expert accountants and actuaries, so should the mere guessing about future income conditions be replaced by making use of the modern statistical applications of probability.! §4 (to Cm. XVI, § 20) Method of computing a Pure Level Life Insurance Premium The chief peculiarity of life insurance is that each year’s premiums, in properly organized insurance companies, are calculated not on the basis of the chance of death in that year, as in the case of fire insurance, but are computed as “level premiums,” which exceed this chance in the early years of the policy, and fall short of it in later years. The wisdom of such an arrangement is justified by the incentive which is produced for all “risks” to remain insured, whereas when the “natural” premium only is charged, increasing with age, there is a tendency for the better risks to withdraw, making thereby a “selection” adverse to the companies. A consequence of a “level” premium being charged is that the policy acquires an increasing mathematical value with time, so that the policy holder, after a few years, sometimes possesses a very valuable property, which he can, if he chooses, sell or use as collateral security for loans, ete. The value of such a policy, computed on the mathematical basis, is of 1 Cf. “The Put and Call,” by L. R. Higgins, London, 1902, pp. 65, 66. For some suggestions along this line, see Edgeworth, © Mathematical Theory of Banking,” Jour. Roy. Statis. Soc., March, 1888; for a state- ment of the modern statistical method, see Karl Pearson, Grammar of Science, and his journal ¢ Biometrica® ; for an application of this method to financial and industrial problems, see J. P. Norton, Statis- tical Studies in the New York Money Market, New Haven (Tuttle, More- house & Taylor), 1903.

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