Freedom is an uninsurable risk; P.L. Poirot

UNDER "no-fault" auto insurance, presumably every owner would be covered and have to pay premi ums, and most claims for damages would be drawn against the pool, regardless of whose negligence might have caused or contributed to the casualty. In many respects, such "no-fault" insurance resem bles Workmen's Compensation and is .in keeping with other develop ments in our welfarist society. Formerly, an individual was allowed to assume· the risks and responsibilities of caring for him self in his old age. Then came "Social Security," and rare today is the individual who is allowed exemption from this compulsory program. Compulsory· unemployment in surance now tends to relieve indi viduals of full responsibility for earning a livelihood. PAUL L. POIROT Consistent with universal com pulsory schooling are various gov ernmental child care and family assistance programs. Health care and medicare insur ance programs have been largely collectivized and rendered com pulsory.

Plans are being discussed for governmental remuneration of any victim of crime, regardless of con tributory negligence by the victim - or by the police force instituted to suppress crime. One after another, the risks of living, that once might have been assumed by the individual or in sured against privately if he so desired, have been brought under compulsory insurance programs which cost a· typical taxpaying family $2000 a year. This amount is increasing and is now some three times what it was a decade 269 270 THE FREEMAN May earlier. Further, this figure is over and beyond the costs of any in surance policies still privately car ried such as life insurance, home owner's fire and casualty, automo bile liability and casualty, private pension and medical plans, and so forth. Some private insurance costs are loaded into rental rates and carrying charges on mort gages and other loans, or as fringe benefits of employment, so that the customer may not be fully aware how much he pays privately for insurance - any more than he would know how much of his tax bills go toward compulsory insur ance coverage of one kind or another.

The Age of Socialism The point is that many Ameri cans, from those living below the so-called poverty level on up through middle and higher income groups, literally are being insured to death. The· age of compulsive and compul~ory protectionism is upon us, and another name for this is socialism. It ia not insurance. A voluntary insurance contract is a viable and sound protective device for the pooling of the classi fiable and calculable risks people encounter in life. In a competitive market economy where savings may be privately accumulated and invested and owned - where pri vate property is respected - men have long since devised coopera tive ways of insuring themselves against various contingencies . . But the application of the insur ance principle depends upon a fairly accurate and reliable method of grouping the risks into classes. In the case of life insurance for instance, a person of a given age and normal life expectancy would not want to be pooled at the same premium rate charged persons of another race or society or of ad vanced years with a life expectancy much less than his own. Nor would Mr. Average want to be pooled with a group known to have a poor medical history or with per sons engaged in a particularly haz ardous occupation. Such classes of risks each would be expected to have its own premium for life in surance, based upon fairly accu rate act,uarial tables or experience ratings. Otherwise, anyone with longer life expectancy would more than likely carry his own risk stay out of such high-cost pools perhaps form a new company with others in a class of risk compar able to his own. Men acting volun tarily in open competition thus tend to serve and satisfy their respective and variable needs, each buying as much life insurance as he chooses at competitive rates be fitting his class of risk.

Supposedly, however, there is something wrong with such vol1978 FREEDOM IS AN UNINSURABLE RISK 271 untary life insurance: it fails to cover those who do not want to be insured and who would not, or could not, voluntarily pay premi ums at competitive rates. In other words, if life insurance is volun tary, some persons may choose to use their property for purposes deemed by them to be more im portant than insurance - possibly for food, clothing, shelter, recre ation, some other form of saving and investment; perhaps even for cigarettes, liquor, dr'tlgs, gambling or who knows what. Not Like Insurance Under the Social Security pro gram of the United States, the Federal government insists that nothing· shall be more important to an individual during his work ing lifetime in "covered employ ment" than that 11.7 per cent of the first $10,800' of his annual earnings (1973 rates) be paid into the Social Security pool, regard less of his current needs for food, clothing, shelter, or whatever.

True, the OASDI premium pay ments may vary depending upon the amount of one's earnings; and the eventual benefit payments also may be related to one's record of past earnings. But there also are marked departures from the es tablished insurance principle of grouping the risks into compara ble classes. For instance, the premium rate is the same for a youth in his twenties as for a person in his sixties. The coverage is the same for those who want less in surance, or none, as for those who want more; the same for all occu pations, races,· colors, creeds, re gardless of actuarial histories. Such unrealistic groupings explain why this sort of an insurance pro gram has been made compulsory; it simply couldn't attract volun tary participation. Hard-to-Classify Risks The principles that apply in the case of life insurance also relate to other types of insuranc,e: fir,e, theft, liability, collision, hail, windstorm, flood, malpractice, and so on. If a program of voluntary insurance is to be practical, then the risks must be measurable and more or less easily classifiable' so that rates may fairly reflect the costs for a particular class of risk.

And in some cases, such as hail or hurricane or flood insurance, the risks may differ so much from one geographic area to another, or may be so great in any given area, that an owner might simply elect to take his loss if and when it oc curs rather than pay a very high annual premium. Following a local hailstorm or hurricane or flood of disastrous proportions, there is likely to be a clamor for Federal aid - which would amount to com272 'THE FREEMAN May pulsory insurance of these hard to-classify risks on a nationwide basis. Another principle of sound in surance is that the policyholder (and presumably the one who pays the premium) has a morally and legally insurable interest in the property in question. In other words, it is definitely to his in terest to see the property main tained intact in its prevailing use rather than lost or destroyed. He'd rather have his home or business property as it stands than to have it burned down for the insurance.

He'd rather have his actual and anticipated earnings from the market place than to collect on his life or disability or unemployment policy. Some persons are known to be poor moral risks for certain types of insurance, and no one of sound mind and character willing ly chooses to be pooled with such high-risk cases when he buys his own insurance. Breakdown of Morals The proliferation of compulsory government insurance programs. in any society seems to be closely linked with the moral deteriora tion of the people, though the pro grams are seldom if ever ini tia ted or promoted on any such premise. On the contrary, Social Security, Workmen's Compensation, Unem ployment Payments, Medicare, Disability Benefits, Veterans Pen sions, Family Welfare, No-Fault Auto Insurance, Flood Relief, and the like invariably are launched upon good intentions to help the hapless and worthy poor - usually at taxpayer expense. But if actu arial tables tell us anything for certain, the fact is that subsidiz ing a weakness aggravates and accentuates it. The "worthy poor"

multiply in proportion to the hand outs made available - which is a ' condition known in the insurance business as a poor moral risk. The same result may be expected of any compulsory insurance pro gram: excessive demand for the benefits, and no one volunteering to pay the premiums. The Human Situation The utopian dream of living ex clusively upon the fruits of the labor of others is forever doomed to disappointment. And the reason is clear. There are no "others" who want to work and produce and save entirely for someone else's satisfaction rather than for their own purposes. Socialism sadly misreads the human situation, presuming self-interest to be no significant feature of human na-j ture. "All for each and each for all," is the basic socialist slogan, and it does have great emotional appeal; wouldn't that be nice! "To each his own," however, is 1973 FREEDOM IS AN .UNINSURABLE RISK 273 a slogan far more consistent with the nature of man. He is motivated by self-interest, and often, if not always, can understand that it is in his own best interest to serve efficiently the most urgent inter ests of others. Thereupon rests the case for private ownership of property, voluntary exchange, open competition and government lim ited to policing the market. This affords the maximum or optimum cooperation possible among men who are not perfect saints. The consumer may be king, but only if he is guided by the economics of production rather than by the fictions of consumerism or the fully insured life. What is not pro duced may not be consumed. And what is not privately owned and controlled is not realistically in surable.

An Insurable Interest So, we come once more to the principle of insurance against cas ualties and the reason why the principle is inoperable under so cialism. If there is property, a portion of it may be invested (pooled, if you prefer) to cover the probability of losing all of it. Now, who is interested in covering that sort of risk? Have you ever seri ously considered buying a policy to insure your neighbor's life or his house against loss by fire? Probably not. You insure your life or your own property against such losses, and you do it only because tha~ property, or the loss of it, is all yours. The Preamble to the Constitu tion of the United States reads like an insurance policy: We, the people . . . in order to insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution ....

Here we have the one thing and the only thing in which all the peo ple of a society have a common insurable interest: protecting peaceful persons and their activi ties against criminal intervention - in order to secure the blessings of liberty. The Founding Fathers thus gave us the formula for limi ted government - compulsory in surance against criminal inter vention. In contrast, the formula of com pulsory collectivism - "to each ac cording to need" - would presume to insure against every contin gency, thereby precluding the for ever uncertain blessings of liberty. Governmentally managed "welfar ism" has been thoroughly tested, in the United States and in other nations. All the evidence indicates that this leveling-down process eventually strips the individual of 274 THE FREEMAN May his dignity, choice, incentive, prop erty, and personality - a compuls ory insurance scheme with its premiums taken "from each ac cording to ability."

Many today have forgotten that the Pilgrim Fathers on the shores of Massachusetts, as well as the first colonists of Virginia at J a,mestown, tried this· communal form of insurance. Out of their common product and storehouse they set up a system of rationing. And the result was famine - until they abandoned the socialist for mula and resorted to private own ership, competition, and trade. The lesson seems to be that the most trustworthy way to insure one's life, or property, or anything else one possesses of value is to put that property and those talents to productive use. By thus serving others, one earns from them all the insurance he deserves. If a person would be free, he has to assume the responsibili ties and uncertainties of open compe tition and peaceful exchange. These essential conditions of free dom, as variable as the thoughts or the fingerprints of individ uals, are not subject to classification, nor can the results be calculated or known in advance. This is why freedom is an uninsurable risk. , IDEAS ON LIBERTY Voluntary Cooperation IN A WORLD of voluntary social cooperation through mutually beneficial exchanges, where one man's gain is another' man's gain, it is obvious that great scope is provided for the develop ment of social sympathy and human friendships. It is the peace ful, cooperative society that creates favorable conditions for feelings of friendship among men.

The mutual benefits yielded by exchange provide a major in centive to wouldbe aggressors (initiators of violent action against others) to restrain their aggression and cooperate peace fully with their fellows. Individuals then decide that the ad vantages of engaging in specialization and exchange outweigh the advantages that war might bring. MURRAY N. ROTHBARD, Man, ECO'nomy, and State EDMUND A. OPITZ larll I.all. ABOUT a dozen years ago, the London magazine, Contemporary Rev'iew, published an article by Colin Welch, a new Member of Parliament, reflecting on his first year at Whitehall. "Coming afresh to Parliament in this silver age," he wrote, "it is impossible not to feel one is too late. The great de bate is over. The voice now silent was a great and uniquely English one: that of Milton and Locke, of Burke, Mill, Gladstone and Morley - [it was the voice] of liberalism, with a small '1'."