APPENDIX TO CHAPTER XVI 409 
the theory of distribution. From it follows as a corollary that 
the richer an individual, the less risk in taking risks. Being 
possessed of capital, he has a wider range within which he can 
safely afford to operate, and therefore he has a far greater 
probability of keeping within these limits of safety than his 
less fortunate competitors. Professor Norton has also empha- 
sized the fact that the advantage of the capitalist is further 
enhanced by the tendency toward monopoly. “The result is a 
most interesting circle, constant combination at the top in 
order to force down the commercial price of the risk, and 
monopoly of the upper field, which pays tremendous profits, 
resulting in still greater increase in the financial power of the 
risk takers. To this there is no end, save in the divorce, 
through heredity, of ability and financial power.” 1 
An important application of these methods is to the calculation 
of the chance that earnings should fall below the amount re- 
quired to pay interest on bonds. This chance is found from the 
probability table. It is the probability corresponding to that 
relative deviation obtained by dividing the difference between 
the mean expected earnings and the interest by two thirds of 
the standard deviation. In this and other ways business men 
could, as Professor Norton has shown, make better use of their 
Past experience than they do. Merely to glance over past 
earnings and receive an impression is not a very scientific mode 
of utilizing the facts which those earnings display. To aver- 
age them is not of much more value, While it is important to 
know the mean, it is also important to know the dispersion 
about the mean. This dispersion is shown by the standard 
deviation. The best procedure would therefore seem to be to 
calculate first the mean of past experience as to earnings; 
secondly, the standard deviation from that mean; thirdly, the 
chances of fluctuations thus displayed (e.g. the chance of 
earnings falling below the interest-paying line); and, fourthly, 
to correct the results thus obtained by taking into account the 
degree in which it is believed that the future will not follow 
in the footsteps of the past. Only the last of these four 
! From a letter to the author. Cf. also Professor Norton’s ¢ Theory of 
Loan Credit,” Publications of the American Economic Association, 1904, 
Pp. 64.