trifling risks themselves; they can predict the aggregate sums which they will be called upon to pay within a small margin of error.  In the same way it might seem that every enlargement of the scale of business would make for an automatic insurance and a consequent economy of risk; and thus that if all businesses were comprised in a single financial unit, gains and losses would cancel out over so wide a range that the degree of risk remaining would be almost negligible.

This might indeed happen, if business risks were mainly of that objective kind in which the insurance companies specialize; for then we could assume that the chances of success or failure would be estimated reasonably.  But, in fact, most business risks, not being of this kind, must be estimated by processes of human judgment, which are very fallible.  And here we must take account of the law of averages in another aspect, with a different bearing on the argument.  When an industry comprises a large number of separate concerns, and the decisions accordingly are taken by many men, acting independently of one another, the errors of calculation will tend to some extent to cancel one another out.  The undue optimism of one man will be balanced by the undue pessimism of another; and, if there is no prevailing bias in either direction, the errors of judgment will not affect the results for the industry as a whole.  But where the effective decisions are taken by very few men, the chances are far greater of a preponderating balance of error in one direction.  The risks dependent on the factor of human judgment tend therefore to increase.

This truth can be illustrated by a phenomenon which is fairly familiar.  It is recognized by intelligent persons that the risks of speculation in a particular commodity market or stock market increase more than proportionately to the scale of operations.  A man who sets out as a “bull” upon a small scale can buy without sending up the price against him in the process, and, if he decides later that his judgment is mistaken, he can at any time cut his losses and sell out without much difficulty.  But a “bull” on a very large scale cannot complete his purchases except at a price which has been raised in consequence of his own action, and he cannot count on being able to “unload” at or near the market price, should he decide to do so.  If, accordingly, he miscalculates, he cannot save himself from serious loss as a smaller man might do by a prompt discovery of his error.  His difficulties spring from the fundamental fact that the effects of his calculations are too great to be offset by those of the different, and often opposite, calculations of other men.

Upon the issue whether a growth in the size of the business unit is likely to diminish risk, the law of averages thus cuts both ways.  The risks arising from the element of pure chance are more likely, those arising from miscalculation are less likely, to cancel out.  Upon these grounds alone, it would be unsafe to conclude that there would be on balance an economy of risk under any system of national or world socialism.