288 NATURE OF CAPITAL AND INCOME [Cmar. XVI

therefore also reduce the balancing item on the other side,
called undivided profits, or profit and loss. But the income
account is not affected except as the new outlook toward
the future may lead to new expenses for reconstruction,
or to new income.

§ 15

Business men try not only to estimate the risks which
they must encounter and to adjust their accounts accordingly,
 but they also endeavor to avoid such risks altogether.
This follows from the existence of the factor of caution.
Where the coefficient of caution is abnormal, amounting to
incaution, risks are not avoided, but are expressly sought,
and the phenomena of gambling and indiscriminate speculation
 are the result. ~ But in the great majority of men there
exists a healthy fear of risks, and in consequence a tendency
to avoid or reduce them.
There are five principal ways in which risks may be reduced,
 viz.: —
1. By increasing guaranties for the performance of contracts;

2. By increasing safeguards against incurring losses;
3. By increasing foresight and thereby diminishing the
risks ;
4. By insurance, that is, by consolidating risks;
5. By throwing risks into the hands of a special class
of speculators.
These will be considered in order.

§ 16

The ownership of capital wealth necessarily involves
risk, since the income from it can only be estimated, —never
precisely foreknown. But it is possible, by a division of
the ownership of capital wealth, for one class of property
holders to assume the burden of risks and to guarantee to
another class a fixed income. This is the primary reason