F 
 
 UNIVERSITY OF CALIFORNIA 
 AT LOS
 
 CO-OPERATIVE CREDIT FOR THE 
 UNITED STATES
 
 BY THE SAME AUTHOR 
 
 Pe»ple's Banks: A Recoed of Social 
 AND Economic Success. 
 
 Co-operative Banking. Its Principles 
 AND Practice. 
 
 A Co-operative Credit Bank Hand- 
 book. 
 
 Co-operatut: Credit Banks. 
 
 CO-OPEBATION in AQEICULTUBE.
 
 CO-OPERATIVE CREDIT 
 
 FOR THE 
 
 UNITED STATES 
 
 BY 
 HENRY W. WOLFF 
 
 Late President of the International Co-operative Alliance, author of 
 "People's Banks: a Record of Social and Economic Success"; 
 "Co-operative Banking"; "Agricultural Banks: Their 
 Object and their Work"; "A Co-operative Bank 
 Handbook"; "Village Banks: How to start 
 them, how to work them, etc."; "A 
 People's Bank Manual"; and 
 "Co-operation in 
 Agriculture" 
 
 J J J i J - t ) 1 rf ■ 
 
 ♦ »->30-' . t ■ ... ■ , , * > O t '>* » 
 
 "Wew Korft 
 
 STURGIS & WALTON 
 
 COMPANY 
 
 1917 
 
 All rioht$ re$erved
 
 Copyright, 1917 
 By STURGIS & WALTON COMPANY 
 
 Set up and electrotyped. Published, May, 1917. 

 
 
 PREFACE 
 
 Evidently Co-operative Credit has become an ob- 
 ject of attention to the American public. The echoes 
 of European records of success have sounded across the 
 Atlantic and people in the United States appear desir- 
 ous of putting the approved European recipe for want 
 of working capital to a test. 
 
 Of the great value of Co-operative Credit as a pro- 
 ductive force and a creator of widely diffused wealth 
 - there can no longer be any question. The object to be 
 accomplished is to put the successful principle in a 
 shape to suit American surroundings. 
 
 Time and circumstances have given to the one im- 
 mutable principle dominating throughout a variety of 
 differing shapes and accordingly produced a number of 
 \ " schools " now proffering conflicting advice. 
 '^ Under such circumstances perhaps an impartial and 
 g " objective " presentation of the matter, coming from 
 V^ one who has for nearly a quarter of a century been a 
 \ close student and careful observer of the entire co- 
 operative credit movement, in all its parts, in touch 
 with all its various sections, though not identified with 
 any as a partisan, may prove acceptable to American 
 readers as a help for further consideration and do some- 
 thing towards preventing false starts, which under the 
 present aspect of things are a danger to be reckoned 
 with.
 
 vi PREFACE 
 
 The same ground has, up to the dates of publication 
 of the several works, been covered bj the same writer 
 in earlier books. Those books were, however, written 
 specifically for British readers. In the present book 
 it has been the author's endeavour to present the same 
 picture, as fully and as impartially, in a manner suited 
 to the ideas and habits of an American public. 
 
 H. W. W. 
 
 May, 1917.
 
 CONTENTS 
 
 CHAPTER PAGE 
 
 Preface v 
 
 I Why Co-operative Credit Is Wanted . . 1 
 
 II General Principles of Co-operative 
 
 Credit 30 
 
 III Co-operative Banks Based upon Share 
 
 Capital 61 
 
 IV Co-operative Banks Based upon Unlim- 
 
 ited Liability 95 
 
 V Central Institutions . . i. . . . 131 
 
 VI Control and Audit 158 
 
 VII Variants and Dangerpoints 176 
 
 VIII Co-operative Mortgage Credit .... 216 
 
 IX In the Wake of Credit 372 
 
 X Legislation 289 
 
 XI Conclusion 312 
 
 Index 345
 
 CO-OPERATIVE CREDIT FOR 
 THE UNITED STATES 
 
 CHAPTER I 
 
 WHY CO-OPEBATIVE CREDIT IS WANTED 
 
 Opinion in the United States has settled down to 
 the conclusion that handier and more accessible credit 
 is one of the most crying needs of the day. Three 
 Presidents succeeding one another in office have given 
 forcible expression to that conviction; and Congress 
 and other large and representative public bodies — like 
 the Southern Commercial Congress — have lent it their 
 authoritative support. An official Commission of In- 
 quiry has been despatched to Europe specially to take 
 note of what is being done in that quarter of the globe 
 to meet such pressing want, which it has rightly been 
 concluded is not one of local occurrence only. It is 
 general throughout the world. The shoe is in the 
 United States at the present moment found to pinch 
 most painfully in the province of agriculture. There 
 are special reasons for this. But once the source comes 
 to be tapped, there will probably be more people to 
 want to drink of its refreshing waters. Experience in 
 this matter, as might be demonstrated by instances, 
 
 goes to show that the need of credit is not generally 
 
 1
 
 2 CO-OPERATIVE CREDIT 
 
 definitely realised before relief is actually brought 
 within reach; whereas, once credit is provided for, a 
 multitude of fair claims soon come to be set up. The 
 presence of the remedy provokes a diagnosis of the 
 disease. In the very case of the inquiry just alluded 
 to, it is rather the report of what is being done else- 
 where which has called forth such research than a 
 previously clearly realised want — although after the 
 suggestion of means of relief offered that want has 
 been clearly enough admitted. 
 
 Credit, of course, there is — a large volume of it, in 
 the United States as elsewhere. But there can be no 
 question but that the use of it still remains, as it has 
 been from the date of its first introduction, the privi- 
 lege of a minority, to wit, the wealthy, and that it has 
 trickled down only slowly and sparingly, and very un- 
 equally to the lower strata. Much as this is to be de- 
 plored — since, in the late Signer Vigano's words, it 
 is the poor who needs credit most and, as Signor Gius- 
 tino Fortunato has put it, " the poor is denied credit 
 because he is poor, and he remains poor because he is 
 denied credit " — there is nothing but what is per- 
 fectly natural in this state of things and no fault what- 
 ever is to be found with the bodies dispensing credit 
 on the score of supposed unfair partiality. It is cus- 
 tom which determines practice, not inherent justice. 
 Nothing teaches the advantages of the use of money 
 like the possession of it ; and, since credit is impossible 
 without security, he naturally is the first to obtain 
 credit who has the most visible — and, if necessary, 
 attachable — security to offer.
 
 WHY CO-OPERATIVE CREDIT WANTED 3 
 
 It will be well in this connection to bear in mind 
 of how recent origin really credit in our present sense 
 — productive credit — is. Credit of a certain sort — 
 consumer's credit — there has been ever since there has 
 been money. The man in need naturally appeals to 
 his neighbour to rescue him from his embarrassment. 
 Kings in difficulties have, as Leon Say says, borrowed 
 on the security of their crowns and jewels. Spend- 
 thrifts have invoked the aid of the usurer to help to 
 ruin them. The man whose ship has unexpectedly 
 failed to come in, or whose harvest has disappointed 
 him, has, like Shakespeare's Antonio, gone to his par- 
 ticular Shylock for assistance — and has got it. There 
 is plenty of this kind of borrowing still going on, and 
 probably will be while the world stands. Everybody, 
 except the usurers who fatten upon it, recognises it as 
 an evil and a danger. Plenty of wise saws — which 
 are now freely misquoted against credit of a totally 
 different sort — have been coined, from King Solo- 
 mon's day downwards, to brand it as a snare. " Who 
 goes a-borrowing goes a-sorrowing," "He that hateth 
 suretyship is sure " — there are plenty of such pro- 
 verbs which, like every proverb, are unimpugnable in 
 their proper sense, but wholly out of place in other 
 applications. All this kind of credit is consumer's 
 credit — credit which is designed to make up some 
 loss already incurred. It may be legitimate. In the 
 majority of cases it is not so. In favourable cases it 
 may reduce loss to the borrower by enabling him to 
 tide over a difficult time. It never produces value. 
 As a rule it adds loss, which may be heavy, to loss
 
 4 CO-OPERATIVE CREDIT 
 
 already incurred. It is reflection upon this kind of 
 credit which has prompted that overtimid rich men's 
 superstition, that whoever is poor is not entitled to 
 credit and should under all circumstances be denied it. 
 
 There can be no doubt that credit of the sort just 
 described should be discouraged. 
 
 However, the credit which public opinion now de- 
 mands in the United States — in the first instance for 
 farmers — is of an entirely different complexion. It is 
 in very truth the very antipodes of improvident credit, 
 and offers in fact the most effective antidote against 
 it. Far from engendering improvidence, it impresses 
 upon the mind a vivid sense of responsibility, as noth- 
 ing else will impress it ; it trains to provident employ- 
 ment of money and teaches businesslike, precedent 
 calculation. Far from leading to loss, it guards 
 against it and produces value. Far from weakening 
 character, it directly strengthens it. It is a credit 
 which will repay itself out of that on which it is 
 spent. 
 
 Credit of this sort the world requires greatly, in 
 steadily increasing volume. For trade, commerce, in- 
 dustry — every productive calling — advancing by de- 
 grees, has long since outgrown its accustomed, old- 
 world, binding garb. It wants space to expand in. 
 It wants more nourishment to increase its size. Trans- 
 lated into economic English, that means in the main 
 that it wants more money to work with. For it wants 
 more, or else better skilled, labour to feed it — which 
 labour has grown dearer with increasing demand. Or 
 else it wants costly, up-to-date, labour-saving ma-
 
 WHY CO-OPERATIVE CREDIT WANTED 5 
 
 chinery to make that labour dispensable. It has more 
 competition to face, which means, that it must manu- 
 facture on a larger scale, so as to manufacture more 
 cheaply ; and with greater care, so as to turn out a tip- 
 top article. All this requires a larger command of 
 cash. 
 
 Such cash may well be hired only. For it is wanted 
 only to perform a distinct task occupying a limited 
 space of time, which time elapsed, it will return with 
 interest and may be repaid. It answers a productive 
 want just like tools, or power, or raw material. In 
 fact, it is to greater advantage that it should be hired 
 than possessed. For money possessed, its owner is 
 free to deal with according to his momentary fancy, 
 without owing any one any account. If he wastes it, 
 that is his own affair, and no one can haul him over 
 the coals for reducing the productive power and wealth 
 of the nation. Let the money be borrowed only, and 
 the man who employs it cannot help feeling his re- 
 sponsibility at every turn and in every act. That 
 money has to be repaid, and repaid within a given 
 time. Such consideration cannot fail to make our 
 man careful. 
 
 From a mere convenience, mere improvident, risky 
 and costly accommodation, in this manner credit has 
 been raised to a more dignified position, for which the 
 way has been slowly paved by the purely commercial or 
 banking employment of credit (for the transmission of 
 cash or the facilitation of the sale of goods), on which 
 completed transactions credit has for a long time back 
 been allowed. Its sphere of action has, from the past.
 
 6 CO-OPERATIVE CREDIT 
 
 or at best the present, become extended to the future. 
 Here was a new opening for credit of far-reaching 
 and most beneficent import! Here was a new stimu- 
 lus to business, which promised to carry it successfully 
 over all obstacles of modern business organization! 
 Assuming that the enterprise was sound, there were 
 no longer any limits to the working power of the capi- 
 tal employed. Credit would increase it according to 
 requirements. Credit would admit of the use of the 
 most perfected machinery, the most efficient power and 
 wholesale production. 
 
 The world has benefitted largely by that admission 
 of credit as a productive factor. For, as far as it could 
 be claimed, by far the greatest part of the world's busi- 
 ness is now carried on with the use of credit. And, 
 were credit to cease, trade, industry, commerce, even 
 national finance and whole countries' care for social 
 needs would come to an end. 
 
 Unfortunately there was still the problem of security 
 to be reckoned with. For credit is of course altogether 
 impossible without security. And the security must 
 be such as will satisfy, not the borrower, but the lender. 
 Credit means "faith." The ancient Eomans openly 
 spoke of " fides." The lender wants to be able to re- 
 pose " faith " in the borrower or in his enterprise if he 
 is to part with his money. And he naturally turned to 
 a visible foundation for his trust or faith first, because 
 he did not know of any other. He would lend, not 
 for the most promising enterprise, but to the wealthiest 
 person embarking upon it. Accordingly credit nat- 
 urally gravitated to wealthy men, who have known so
 
 WHY CO-OPERATIVE CREDIT WANTED 7 
 
 well to turn it to account that it is no exaggeration to- 
 day to say, that the most valuable benefit that the pos- 
 session of money ensures in business is, that it per- 
 mits the largest credit. It is, for instance, on their 
 money obtained by credit that bankers net their profits, 
 not on their own share capital, although that very 
 reasonably is made to serve as criterium in the act of 
 distribution. 
 
 However, the man who is not wealthy requires credit 
 for his business quite as much as, if not more than, the 
 Croesus, as the Italian economists, already quoted, have 
 shown. And in the interest of the community it is of 
 the greatest importance that he should have it. For 
 the community is made up, not of the few rich men 
 who gleam like sunlit mountain tops scattered over a 
 wide surface, but in the main of the humbler strata of 
 the population, whose well-being determines its own. 
 Our humbler man, indeed, requires credit all the more 
 for the very reason that he is less well endowed with 
 capital. If he is in trade, it is very likely that he will 
 have on his part to allow credit to his customers. He 
 must — like his wealthier rival, with whom he com- 
 petes — produce up to the mark, and for that he re- 
 quires the use of money. The money will be worth the 
 lending, because in comparison with his wealthier 
 neighbour our smaller man brings more of what really 
 is his own to the more modest enterprise. His labour 
 stands for more in the collective account. There is 
 larger scope for the exercise of his personal qualities, 
 his judgment, his talent and his efforts, in proportion 
 to the money employed.
 
 8 CO-OPERATIVE CREDIT 
 
 These poorer claimants for credit have thus far been 
 only very inadequately supplied vi^ith it. There has 
 been some credit, indeed, which has trickled down to 
 them, owing to some fortunate circumstance or other. 
 But it has been eclectic, capricious, independable, and 
 certainly insufficient credit, filtering down unequally to 
 the lower strata, like the moisture which in Down coun- 
 try has in places decomposed the barren, dry chalk, 
 to form of it that marvellously rich red soil, decayed 
 chalk, which will bear magnificent crops, while leaving 
 the great mass of that chalk formation by its side in its 
 pristine condition, barren and dry. 
 
 This being so, let us picture to ourselves what readily 
 accessible credit for any one who could profitably em- 
 ploy it would do for the improvement of economic con- 
 ditions in the world. The small tradesman, the small 
 manufacturer, the working man with ideas and honesty 
 — it is these who make up the bulk of the world's popu- 
 lation and whose wellbeing means the wellbeiug of the 
 world, as their distress means the distress of the world. 
 There are millions of creatures with gifts, with powers, 
 with ability, condemned to a scale of earning which is 
 much below their abilities, to a measure of production 
 the exiguousness of which leaves the world the poorer. 
 We have read lately with admiration of the great work 
 of soil improvement in progress in Egypt, by which 
 hundreds of square miles now lying absolutely barren, 
 as being saturated with salt, are to be changed into fer- 
 tile loam, producing in the shape of peculiarly silky 
 cotton one of the most remunerative crops, by the simple 
 process of unsalting. Comparing large things with
 
 WHY CO-OPERATIVE CREDIT WANTED 9 
 
 small, on a far larger scale might a similar fertilising 
 work be carried out in the himian desert of under- 
 utilised labour, could the pernicious salt which now 
 sterilises it, in the shape of the want of a suitable work- 
 ing fund, be removed from it. 
 
 There is not a stratum in human society in which 
 at some point or other the use of cash could not evoke 
 richly generating power and promote production profit- 
 able for the world as for the individual. Give these 
 people, so far as they are found deserving of it, the use 
 of cash, place the financial ladder before them on which 
 they may mount from rung to rung — what a different 
 world would this world of ours become ! 
 
 The need here instanced has in the United States 
 been most noticed in the case of Agriculture, in the 
 first place because Agriculture has greatest difficulty 
 in accommodating itself to the traditional conditions 
 of the credit market, and, in the second because Agri- 
 culture finds itself in a real fix owing to a great change 
 in the circumstances amid which it is called upon to 
 work. As the Hon. J. Wilson put it while still at the 
 head of the United States Department of Agriculture, 
 Agriculture has in the United States for the most part 
 passed through what he describes as the first stage of 
 its development, the " exploitational " stage. That, no 
 doubt, still leaves a very considerable portion of it in 
 that early stage. For we read of diminishing crops 
 and of a steadily shifting — and indeed dwindling — 
 farming population — in the South one third of the 
 cultivating farmers being in possession of their holdings 
 only one year or less. The second stage, according to
 
 10 CO-OPERATIVE CREDIT 
 
 Mr. Wilson's chronology, brings no relief. For it is 
 the stage only of astonishment at the unexpected falling 
 off of returns which leaves farmers — as many accounts 
 testify — with scarcely any remuneration — if indeed 
 any — for their labour and risk. Farmers stand 
 aghast at the discovery that the old accustomed methods 
 will no longer produce the accustomed results. Many 
 of them desert their calling and add to the over-filling 
 of towns and of other walks of life, while statesmen, 
 like the three Presidents referred to, complain that at 
 this rate it will not be long before the United States, 
 once the granary of the world, will have to import food, 
 instead of exporting it. Beyond the stage of wonder- 
 ing despair and astonishment only a small vanguard ap- 
 pear thus far to have advanced into the promised land 
 of intensive, paying AgTiculture, in which science and 
 skill, with a well filled exchequer at their back, re-fer- 
 tilise the exhausted soil and scientifically produce full 
 crops by providing the proper nutriment and cultiva- 
 tion for them. There are some pioneers^ some men 
 with brilliant records, whose success ought to serve as 
 an encouragement to their class. But they are com- 
 paratively few. It is for such resuscitation of Agri- 
 culture that the use of money is required. And it will 
 well repay it. Science and skill by themselves will 
 avail nothing. They must have the material to work 
 upon. And the material, and also its proper manipu- 
 lation, cost money. We have got to that stage in Agri- 
 culture in which the dollar tells, and the more dollars 
 there are, the more certain and the more substantial 
 will be the effect. For it is always the last hundred-
 
 WHY CO-OPERATIVE CREDIT WANTED 11 
 
 weight of fertilisers, the last sack of feeding stuff which 
 produces the largest profit. The first allowance serves 
 only for sustentation. ISTourish a bullock on sustenta- 
 tiou rations and he will never be fit for the butcher. 
 Manure a field in a niggardly way and it will at best 
 repay the cost of production. What produces profit 
 lies beyond. If we want to hold our owti in Agricul- 
 ture, make the land, gxeatly appreciated as it has be- 
 come under increasing demand, pay, we must have a 
 bagful of money to lay out upon it without stint. The 
 story of the owner of a thousand acres and three daugh- 
 ters is well known. He just managed to make both 
 ends meet, and when the time came for giving his eldest 
 daughter in marriage he had no dower to bestow upon 
 her. So he gave her 250 of his 1,000 acres of land. 
 " We shall have to pinch to eke it out," was what he 
 said. But to his surprise he did better on the reduced 
 area. His small working capital went further. And 
 he did best of all when, having married all his three 
 daughters, and giving each the same portion, he had 
 only 250 acres left to employ his old working capital 
 upon, which at first had had to do duty for 1,000. The 
 Romans had a proverb which said : It is not the land 
 which produces the crop, but the year. What with 
 the pressure of population and the ample new resources 
 which science and observation have placed at our dis- 
 posal, it is now distinctly the dollar — to be directed 
 of course by skill and businesslike management — 
 which produces, upon a soil which to-day serves for 
 little more than to give the crop its standing room and 
 the requisite physical conditions, not its nutriment, not
 
 12 CO-OPERATIVE CREDIT 
 
 the necessary nursing and training. The supply of 
 that must be left to the dollar. 
 
 The truth of this is still far too little understood. 
 America is not singular in this. There has been the 
 same tale to tell in every country of the globe. It is a 
 difficult lesson to learn. In no calling is the " wisdom 
 of our ancestors " held in higher esteem, is the old 
 " leather jacket " more reverently respected than in 
 agriculture. " My father farmed in this fashion, why 
 should not I ? " The hidden scientific ways of crops 
 and beasts, the secrets of plant nourisliment and animal 
 nutrition make themselves appreciated by the brain of 
 the practical worker only with difficulty. To bring that 
 about we still want what a present day American writer 
 has called " a veritable campaign of education." There 
 are plenty more things in heaven and earth than are 
 dreamt of in our old farmers' philosophy. Add to that 
 that the farmer is bv nature — all the world over — an 
 uncommunicative, rather distrustful, self -engrossed 
 and self-sufficient being! I write as a man who has 
 been one. And, if it were otherwise, if the knowledge 
 of the new agricultural teaching were to penetrate into 
 the farmer's mind, if he were to gi*asp the value of a 
 scientific rotation of crops, of cow testing, of eclectic 
 breeding and so on, where is the money to give effect 
 to it? 
 
 It is perfectly true, as is often objected, that there 
 are fanners in the United States who can borrow money 
 at fair rates. No doubt there are. Substantial men 
 can always obtain credit anywhere, whatever their call- 
 ing. But how many are there who are so situated?
 
 WHY CO-OPERATIVE CREDIT WANTED 13 
 
 And do these men, and can they, use their credit to the 
 extent that it ought to be used, for employment on their 
 field, in the same way that manufacturers and mer- 
 chants use theirs ? That, I fear, is greatly to be doubted. 
 It is so just because it has not yet dawned upon farmers 
 ds a class, what very profitable use might in their call- 
 ing be made of working credit, which puts value into 
 the farm and gathers it back with increase in after all 
 only a very short time. And it is to be feared that 
 the number of farmers so privileged is only small, if 
 not insignificant. An American banker of note, be- 
 ing recently in Europe, was gTeatly struck with the very 
 large number of farmers' promissory notes held by the 
 Bank of France, which had discounted them. Some 
 of them were for large sums, the majority for small, 
 down to exceedingly moderate amounts — even a single 
 dollar. " How is it," so he says that he asked himself, 
 " that here there are these millions and millions of 
 francs of farmers' * paper,' which mean fructifying 
 money, when in the United States there is not one farm- 
 er's promissory note so held that I am aware of ? " 
 And that result witnessed by him, so it will be well to 
 explain, was without the intervention of any artificial 
 " Agricultural Credit " organisation. For the Bank of 
 France discounts on its own account very much larger 
 amounts of farmers' bills than it does under the Credit 
 Agricole arrangement, of which we shall still have to 
 speak. The reason for American backwardness on this 
 point is that agricultural credit is not yet sufficiently 
 understood in the United States and, beyond this, that, 
 in spite of the access given to it, on purely personal
 
 14 CO-OPERATIVE CREDIT 
 
 grounds, to a few privileged men of substance, inde- 
 pendently of their calling, the existing organisation of 
 banking business places serious obstacles in the way. 
 
 Sufficient has already been said to indicate that there 
 are some peculiar features about agricultural credit to 
 differentiate it from other credit. Against this the 
 elder Blanqui's famous saying is often quoted: — 
 "Agricultural Credit? Well, that is just credit like 
 any other." To a certain extent no doubt, that is true. 
 And it answers all those specious, far-fetched pleas 
 with which the basing of agricultural credit upon other 
 foundations than those which are necessary for credit 
 of all sorts is defended. There is far too much of this 
 in the present day. It is thought that agricultural 
 credit must be assigned special sources of supply, to be 
 dressed up in some taking but deceptive hocus pocus 
 garb. Credit is credit. And it can rest upon no other 
 foundation than that of adequate security and responsi- 
 bility acutely brought home. That is the one ruling 
 principle for credit of every kind. However, in point 
 of method agricultural credit differs from ordinary 
 credit at more points than one. 
 
 In the first place it is, as a rule, required for a longer 
 period. The farmer's money returns to him, generally 
 speaking, once a year. Long term notes and bills are 
 not favourites with bankers, at any rate for discount- 
 ing purposes. But the farmer can agree only to long 
 terms or the certainty of renewals — which are likewise 
 not in favour with bankers. There is somewhat less 
 difficulty on this score in one European country in 
 which agricultural credit has secured a brilliant record,
 
 WHY CO-OPERATIVE CREDIT WANTED 15 
 
 that is, in Italy, where six months' bills are common. 
 But even six months is only a short period for a farmer. 
 In Italian co-operative banks an arrangement is very 
 usual which admits of periodical renewals — a certain 
 fixed part of the debt being repaid each time — which 
 may carry the life of the bill on to two or three 
 years. In banks which are based upon share capital 
 this is rendered possible, as will still be shown, by the 
 combination of a large mass of non-agricultural credit, 
 ensuring quick returns, with a smaller volume of agri- 
 cultural — the returns in which are slow. Under such 
 arrangement the short commercial credit readily carries 
 the long agricultural along with it. In any case some 
 special arrangement will have to be resorted to, to meet 
 the difficulty. And that would scarcely suit ordinary 
 bankers. 
 
 But another, even more serious drawback, is the un- 
 certainty of the farmer's return and his unwillingness, 
 naturally consequent thereon, to pledge himself to a 
 given date. In business of any volume certainty of 
 repa^'ment, when the bill becomes due, is imperative. 
 This difficulty is, like the other, to be met only by a 
 possibility of frequent renewals, which requires some 
 special arrangement. For it would not conveniently 
 fit in with present banking practice and it is not to be 
 wondered at that bankers hesitate to accommodate them- 
 selves to such conditions. 
 
 However, these two difficulties mark only one point 
 at which the new body will not fit into the old banking 
 garment. In truth that body, as it has developed, is so 
 unlike the one which the old coat was made for, that, to
 
 16 CO-OPERATIVE CREDIT 
 
 be conveniently suited, it requires to have a new coat 
 altogether of an entirely novel cut. We shall have to 
 recognise the fact that the whole economic organisa- 
 tion of the farmer's world is markedly different from 
 that of the commercial man's world and therefore de- 
 mands different treatment. 
 
 It is sometimes contended, in opposition to this, that 
 present banking arrangements might easily be so ad- 
 justed as to take in farmers. In support of this plea 
 it is urged that, in the first place, not a few farmers in 
 the United States actually are bankers and can there- 
 fore make the farmer's vocational peculiarities paid re- 
 gard to by the banks, and, in the second, that the aver- 
 age size of farms is larger in the United States than it 
 is in Continental Europe, namely 138 acres in the place 
 of 20. The first named argument can in the best case 
 carry us only a very short way. Its application is 
 purely exceptional and does not remove all difficulties 
 where it does take place. There are farmers who are 
 at the same time also stockholders in banks; so it is 
 quite true. But that does not mean that by such " per- 
 sonal union " the two callings of banking and farming 
 are brought any nearer to one another, but simply that 
 a certain number of farmers — which number cannot 
 be large in proportion to the totality of the farming 
 population — having accumulated a certain amount of 
 wealth, have fixed upon bankshares as a profitable in- 
 vestment, just as doctors or lawyers might have done. 
 Secretary Wilson in one of his latest reports remarks 
 hereon : " One of the most notable outgrowths of sav- 
 ings by farmers is the very great multiplication of small
 
 WHY CO-OPERATIVE CREDIT WANTED 17 
 
 national banks in recent years." The farmer-banker no 
 doubt has his say at the board meetings, provided that 
 he happens to be a director. And he will obtain credit 
 from his own bank, or from any other, according to the 
 supposed measure of his wealth. But that is credit 
 for his person, not for his calling. An approximation 
 of the two callings might conceivably be facilitated by 
 such conditions; but it has not yet taken place. Far- 
 mers' investments in bank shares have in fact carried 
 farmers' money into the banks, not bankers' money into 
 the farms. What prevails does not, to make a compari- 
 son, come near the formal arrangement which provides 
 for the appointment of an agricultural " regent " on the 
 Council of the Bank of France, with express instruc- 
 tions to see that the needs of Agriculture are done 
 justice to. 
 
 The second plea, that of the larger size of American 
 holdings, proves in fact nothing at all. For it is not 
 the size of a farm, but its value, — or rather, in this 
 relation, its productiveness — which determines its 
 title to credit. The European twenty acres represent 
 highly perfected intensive farming, where markets are 
 handy and credit is organised, and where the value of 
 the acre goes on increasing. It is interesting to note 
 incidentally what a considerable difference it makes to 
 a farm where credit is in that mobilised condition. 
 M. Pierre Caziot, chief technical adviser to the French 
 Credit Fonder, in a book recently issued,^ quotes in 
 proof of this the instance of the district of the Brie, 
 where credit is well organised and farmers accordingly 
 
 1 Pierre Caziot, La V^leur de la Terre en France. Paris, 1914.
 
 18 CO-OPERATIVE CREDIT 
 
 find a working capital of 800 francs per hectare suffi- 
 cient for business purposes, being able to obtain the 
 balance by credit, whereas in other districts they re- 
 quire about 1,500 francs. The American 138 acres 
 represent for the most part slipshod extensive farming 
 on a deteriorating soil. The profit of farming, as has 
 already been observed, lies in the excess fertilisation, 
 the excess labour and the excess yield, beyond a certain 
 minimum point, which in the United States is not 
 commonly exceeded. However, at best, the average 
 size of holdings in the United States still only repre- 
 sents comparatively small farming. And to such farm- 
 ing banking presents itself as a matter of some diffi- 
 culty. There are the banking customs, unfamiliar to 
 our sons of the soil. There is the distance — which is, 
 in the United States, in most cases greater than in 
 Europe. Credit, to be of use, wants to be readily ac- 
 cessible, without loss of time. And there is, above all 
 things, the difficulty of security. The security which 
 the farmer has to offer is generally understood to be 
 good. It is perhaps less good in the United States 
 than in Europe, because there is more shifting among 
 the farming population and greater difficulty in follow- 
 ing up a migrant who may wish to conceal himself. 
 But even so the security may be taken to be inherently 
 good. However, unfortunately, it is not bankable in 
 the banker's sense. Its precise value cannot be readily 
 ascertained — except it be a matter of mortgage, which 
 had for the present better be excluded from our con- 
 sideration. And the security cannot be easily watched 
 and controlled. If our farmer is to be able to raise
 
 WHY CO-OPERATIVE CREDIT WANTED 10 
 
 money upon it, his security will have to be put into a 
 different shape, so as to become bankable. And for 
 this a new contrivance will be needed. 
 
 That is the crucial point of the whole problem. 
 Whoever contends that by means of " a few slight 
 changes" the system of national, state and private 
 banking may be so adapted as to suit the farmer's case, 
 ignores the main difficulty to be grappled with, that is, 
 the creation of some new bankable security within the 
 farmer's reach. Adapt their systems as they will, the 
 national, state and private banks still must necessarily 
 remain bodies outside the farmer's economy, without 
 sufficient power to control him, except it be by preju- 
 dicially cramping him in his business — bodies with 
 interests distinct from and opposed to his. They can- 
 not be expected to part with their money — which is 
 really not theirs at all — to a borrower except in ex- 
 change for security that they can understand. And 
 security that they can understand is just what the ordi- 
 nary farmer, stand his moral worth ever so high, is not 
 in a position to give. To provide convenient, accessi- 
 ble and sufficient credit for him accordingly some new 
 path will have to be struck out, some new machinery to 
 be devised. 
 
 One proof of this is to be found in the large resort, 
 for want of proper banking facilities, practised in the 
 United States to decidedly uneconomic methods of bor- 
 rowing, of which the Southern " store liens " are no 
 doubt one of the worst specimens. Under this system 
 the lender of money provides the borrower with the 
 necessary cash for raising his crop, which becomes
 
 20 CO-OPERATIVE CREDIT 
 
 pledged to the lender, who in not a few cases dictates 
 even what crop is to be raised and in what way, and 
 to whom not only is the growing crop pledged, but with 
 whom the borrower is also committed to carry on all 
 such dealings in the way of buying and selling (at the 
 lender's prices) as the lender may direct. If all things 
 be taken into account, Mr. George K. Holmes' estimate 
 of 40 per cent, as the average rate of interest paid upon 
 such degrading credit is likely to prove rather an under 
 than an over estimate. But apart from the rate paid 
 for the money this form of credit, which, like the 
 ancient Eoman nexum, ends in servitude and peonage, 
 is bound to stand fatally in the way of all advance to 
 rational, up-to-date farming. There is less to be said 
 against the mere crop lien, in the case of which the 
 growing crops are offered as pledge. But after all 
 even that is uneconomic, besides being cumbrous and 
 in a sense derogatory. Nor yet can chattel mortgages 
 be held a convenient method of providing for credit. 
 Mortgage credit is also often abused — raised, because 
 it is convenient, for purposes for which it is assuredly 
 not legitimate, as burdening the borrower without 
 bringing improvement to the land pledged. The fa- 
 vourite form of credit, however, seems to be that taken 
 from dealers and merchants, sometimes in the shape 
 of lean stock to be fattened for them, more frequently 
 in the shape of time given for the pa^Tnent of goods 
 till after the harvest. Were farmers to calculate what 
 such credit, which seems to them an act of pure kind- 
 ness and generosity, really costs them, many of them 
 would stand aghast at the unexpected discovery and
 
 WHY CO-OPERATIVE CREDIT WANTED 21 
 
 there is probably none who would not subscribe to the 
 declaration of the want of a new kind of credit. 
 
 First attention has here been given to Agriculture, 
 because that is the calling for which the necessity of 
 more ample credit is most keenly and generally real- 
 ised. Restoration of exhausted fertility, improvement 
 of Agriculture to the point of assured remunerative- 
 ness, are felt as crying wants. However, Agriculture 
 is not by any means the sole claimant by inherent right 
 for more popularised credit. The very existence of 
 such institutions as " Remedial Loan Societies," " Mor- 
 ris Banks," " A Bank Chain to kill Usury," and others 
 which dispense small credit in a not strictly economic 
 way, provide telling proof that there is a want to be 
 met in a wider sphere. Such institutions are not in- 
 tended to be purely charitable. They were designed 
 to help lame dogs over stiles — not to give doles, but 
 to make repayable advances to men and women who 
 under ordinary circumstances could earn their own liv- 
 ing but may be for the moment placed in a difficulty. 
 However, they lend such aid under conditions which 
 can scarcely fail to tend to the weakening of character 
 and the breeding of improvidence. This may be predi- 
 cated even of the " Morris banks," the scheme of which 
 appears to have been suggested by the useful " Build- 
 ing and Loan Associations." However, the relief 
 which they bring is at best limited. It does not lay a 
 foundation for a lasting improvement, which may be 
 depended upon. And they distinctly place two differ- 
 ing interests in opposition to one another — one of 
 which, having the command of the money and a divi-
 
 22 CO-OPERATIVE CREDIT 
 
 dend to earn, may very conceivably exploit the other. 
 There are cases, of course, in which the schemes do 
 good, in which a little timely help, rendered to a good 
 man, will enable the latter to right himself. But in 
 the majority of cases, so it is to be feared, the loss to 
 the man himself, by enfeebling fibre and power of ef- 
 fort, and accustoming him to look outside himself for 
 help, is likely to prove greater than the gain to be got 
 out of the transaction. And that is certainly likely to 
 be the result to the community. 
 
 There can be no question that outside the agricul- 
 tural calling there are millions of men and w^omen to 
 whom access to reasonable, non-degrading credit at fair 
 rates would be a material boon, down to the wage- 
 earning working man who, as would appear at first 
 glance, is not likely to have any occasion for productive 
 credit, since his labour brings him in its proper return 
 promptly in the shape of wages, on which he may live. 
 However, he may have opportunities of economising 
 by purchasing for cash and in large quantities, at a 
 saving very much larger than the interest to be paid 
 for a loan, what without the use of such money he 
 would have to buy in small quantities, it may be for 
 credit — shop credit. And reproduction of the money 
 by economy is fully as legitimate an object for a loan 
 as producing new values. And our working man may 
 have belongings, to whom the purchase of tools, imple- 
 ments or raw material with hired money would open 
 a prospect of self-supporting emplo\"ment fully war- 
 ranting the temporary interest to be charged. Our 
 man may also nourish the ambition of rising in the
 
 WHY CO-OPERATIVE CREDIT WANTED 23 
 
 social scale. He may see his way to becoming a self 
 employer, in his own or in some other calling. He will 
 be independent then and able to earn more. He will 
 be a more profitable citizen to his country. Eeckon 
 up the amount of distress that might be turned into 
 prosperity if only people possessing the capacity and 
 having the chance could readily obtain the temporary 
 use of a little money, to enable them to take advantage 
 of their opportunities ! It must total up to a big sum. 
 And have we not the small tradesman still with us, 
 showing no sort of inclination to allow himself to be 
 crowded out by the big emporium? Statistics demon- 
 strate that, although large industry, which by its big- 
 ness forces itself most upon public attention, goes on 
 steadily increasing and expanding, in some cases by 
 phenomenal enlargements, small trade nevertheless 
 manages by its side still successfully to hold its ov^ti.^ 
 To the small tradesman, working with little capital, 
 and often bound to give credit to his own customers, 
 more readily accessible credit for himself would in 
 many cases be an enormous help. And there are peo- 
 ple still old-fashioned enough in their views to hold 
 that a country is all the happier, and likely to be the 
 more prosperous, for possessing a strong, self-support- 
 ing middle class, people working for their own account, 
 not all rich masters or dependent wage earners. 
 
 The United States are well supplied with banks of 
 
 1 See S. N. O. North's observations in Plans, Methods and 
 Scope of the Twelfth Census of Manufactures, torn, vii, and 
 M. Yves Guyot's most interesting paper in the Bulletin de I'lnsti- 
 tut International de Statistique, t. xvii (Copenhagen). The 
 last named paper deals with the relative progress of large and 
 small manufactures in France, Belgium, Denmark and the
 
 24 CO-OPERATIVE CREDIT / 
 
 all pretensions. Their system of free banking has 
 filled their towns, down to very little ones, with bank- 
 ing shops of all kinds. However those banks, many as 
 they are, and varied as they are, cannot possibly supply 
 more than a mere fraction of all the demand that may 
 conceivably arise, once the benefits of accessible credit 
 are fully understood, owing to the inherent differences 
 in their own ways and those of their would-be custo- 
 mers, and the absence of any common standard of 
 value of security. Security there must be, or there 
 can be no credit. However security of the kind at 
 present recognised by bankers these people whom we 
 are here thinking of have not got. There is accord- 
 ingly a gulf between the two classes, which has thus far 
 remained unbridged. What is required is a link to 
 bring them into contact with one another, a bond to 
 enable them to do business with one another. A mere 
 setting up of new counters will not accomplish the ob- 
 ject, because it leaves the two classes still apart, still 
 unable to hitch into one another. So far as number of 
 counters goes, there are probably enough already. 
 What is wanted is the effecting of a union of interests, 
 which will give the creditor a hold upon his debtor and 
 enable him to appraise the debtor's financial value and 
 discover the financial character of his proposed trans- 
 action, without damaging the borrower. 
 
 Such a link to unite interests, such a bridge to span 
 the dividing chasm, has been found in Co-operation. 
 It is Co-operation which has succeeded in bringing into 
 
 United States. The general review is therefore suflBciently com- 
 prehensive.
 
 WHY CO-OPERATIVE CREDIT WANTED 25 
 
 effective contact money and the want of it — other 
 people's money as well as that of the borrowers them- 
 selves viewed collectively; which has succeeded in ap- 
 praising the financial trustworthiness of those in search 
 of credit, and in making bankable a security which 
 previously was only potential and latent. It has done 
 this on a scale which to the newcomer appears down- 
 right fabulous, in a number of countries, practically 
 speaking all countries of the European Continent, and 
 more besides. For Co-operative Credit has begun to 
 blossom modestly also in Canada, in Mauritius, in 
 Japan, and above all things, much more lusciously, in 
 British India, where, need being great and people gen- 
 erally honest — and still well attached to one another 
 in what is a survival of the historic " village commun- 
 ity " — it has made truly astounding strides and has 
 developed with a rapidity hitherto not equalled any- 
 where else in the early stages. Natives who see its 
 work have pronounced it " the greatest blessing that 
 the Indian people have ever yet received." 
 
 What an enormous financial power Co-operative 
 Credit, bringing welcome relief to husbandman and 
 manufacturer, tradesman and wage earner, has grown 
 to be may be gathered from the fact that of the eighteen 
 thousand or so co-operative credit societies existing in 
 Germany, less than a thousand alone — but by far the 
 most important, in one Union — lend out annually 
 something like a billion and a half of dollars. 
 
 The example of India shows among other things — ■ 
 which is an important fact to bear in mind — how 
 adaptable Co-operative Credit is to most widely differ-
 
 26 CO-OPERATIVE CREDIT 
 
 ing surroundings. We could not have one stereotyped 
 method of its application, because that would crush all 
 life out of the institution. In differing circumstances 
 it must be able to assume different shapes. That is 
 why it is so very important to get hold of the 'principles 
 of the institution rather than of the mere methods of 
 application, which have of late been rather too freely 
 advertised, as if they embodied the spirit of the scheme. 
 There must be variety of method, or all cases will not 
 be met. And there can be such ; for acceptance of the 
 principle is fully consistent with a great variety of ap- 
 plications. You cannot in different countries follow 
 one hard and fast rule. The mere fact that the laws 
 bearing upon the matter are in various countries essen- 
 tially different in their demands, precludes that. How- 
 ever, beyond that, every country has its O'wn idiosjTi- 
 cracies, its own customs and usages, to which it is 
 wedded; and according to its habits and traditions 
 must be the method adopted. The consequence of ad- 
 hering rigidly to another country's ways may be to 
 some extent discerned in Belgium, where at the outset 
 German rules were adopted down to the very letter. 
 After a period of highly satisfactory development — 
 for the movement was wanted — results are showing 
 signs of giving way. In Italy M. Luzzatti adopted the 
 German principle, but put it into an Italian garb, and 
 the result has been steady and vigorous progress. 
 Austria is so much alike to Germany in the habits of 
 its people, that the original German system could 
 scarcely fail to answer equally well, although on a re- 
 duced scale. But in Russia, for instance, very differ-
 
 WHY CO-OPERATIVE CREDIT WANTED 27 
 
 ent methods proved necessary, such as have not yet 
 been carried to extreme perfection, but as promise in 
 the end to answer. The most striking departure from 
 the original methods, however, have proved needful in 
 India, where of course co-operators find entirely novel 
 circmnstances and an entirely different population to 
 deal with. Nevertheless in India even more than in 
 other countries has co-operative credit shown itself ex- 
 ceedingly adaptable in its methods. Methods are 
 really of secondary importance. The main point is, 
 to adhere faithfully to the co-operative principle, with- 
 out which history has shown that co-operative credit 
 cannot be applied to good purpose. It produces tares 
 instead of wheat — tares which show remarkably well 
 in their luscious and exuberant gi'een, but which at 
 the end of the season yield no wdiolesome grain. 
 
 There is probably no other economic or financial 
 power which has produced equally truly grandiose re- 
 sults for good. Co-operative credit has scattered riches 
 in abundance over the field over which its horn of 
 plenty has been poured out; and, while scattering 
 riches, it has at the same time also improved and 
 strengthened character, made virtues other than eco- 
 nomic to blossom, sharpened wits and filled men's minds 
 with new economic ideas, which in due course have 
 borne rich fruit. In a word, it has proved an unspeak- 
 able benefit to those v/ho have practised it and to the 
 world around them. It is time that the United States 
 took up this weapon of economic warfare, to fight with 
 it Usury and Poverty and the other social and economic 
 evils which spring from Need. It is in a manner new
 
 28 CO-OPERATIVE CREDIT 
 
 to the population of the great republic and will there- 
 fore require to be carefully explained. At first sight 
 it may appear in its demands to run counter to some 
 ingrained American habits. Probably the fear of 
 this is greater than the reality. The same apprehen- 
 sion has been entertained in almost every country into 
 which co-operative credit has, all the same, eventually 
 found its way, to prosper there. In every instance 
 there was supposed to be "a lion in the way." How- 
 ever the people of the United States have already shown 
 themselves not without their own peculiar co-operative 
 proclivities. There is, so one should remember, a good 
 deal of " Co-operation " practised in their country 
 which does not square with the ideas of European co- 
 operators, though, surely enough, it means "operating 
 together " — for some object very distinctively of gain. 
 However, to state one conspicuous example, the remark- 
 able success of the '' Building and Loan Associations," 
 which in principle approach co-operative action, seems 
 to indicate that there is at any rate a latent predisposi- 
 tion to co-operative methods wherever a need for the ap- 
 plication of such comes to be realised. The United 
 States have also, in point of fact, already possessed 
 embryo co-operative credit societies of humble preten- 
 sions, of the organisation of which nothing is known 
 to-day. They existed before the Civil War and came 
 to an end with its outbreak — just as many little but 
 promising co-operative concerns in France came to a 
 sudden collapse with the outbreak of the Franco-Ger- 
 man war. But it is known that in their humble way 
 these little societies — a mere handful — proved dis-
 
 WHY CO-OPERATIVE CREDIT WANTED 29 
 
 tinctly successful, with the exception of those of New 
 York, which had dabbled in speculation and came to 
 grief over it. 
 
 By reason of its results Co-operative Credit has in- 
 gratiated itself wherever it has gone. It is found 
 worth cultivating and even pushing. Its methods are 
 varied. Its principle is one. It is proposed to ex- 
 plain such principle in the succeeding chapter, and 
 after that to set forth the application which it has 
 found in various methods, in order that " all things 
 being proved, that may be held fast which is good " 
 and suitable to the new surroundings.
 
 CHAPTER II 
 
 GENERAL PEINCIPLES OF COrOPEEATI\'E CREDIT 
 
 The task set to Co-operative Credit is — as has al- 
 ready been explained — to make potential security ef- 
 fective, in order that it may be brought to form an 
 acceptable pledge for a lender to lend upon. That pre- 
 supposes that the elements for such security are in 
 existence, and it also suggests that there is practically 
 no other security available, such as capitalists are now 
 in the habit of recognising. As the most appropriate 
 elements for creating a security we may set down trust- 
 worthiness of character, to justify the fides to be 
 claimed; and a prospective employment which will 
 justify the loan on financial grounds. 
 
 The story is told of one of our great contractors of 
 the past generation, a deservedly most successful man, 
 that he began life as a ganger, whose ability as well 
 as his uprightness of character soon came to be recog- 
 nised by those with whom he was brought into contact. 
 He happened one day to be offered a highly promising 
 contract, for which he possessed the ability, but not the 
 means. For the necessary money he applied to some 
 bankers, to whom he was personally well known. They 
 were aware both of his ability and of his uprightness. 
 But those qualities alone would not have disposed them 
 
 to let him have the cash. However, he unfolded his 
 
 30
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 31 
 
 scheme. And, seeing that it was a good one, on those 
 two grounds combined, which appeared to them to con- 
 stitute a fair security, the bankers lent him what he 
 wanted — and that was put to admirable use and hon- 
 estly repaid. 
 
 Here we have the two main elements out of which 
 co-operative security may be manufactured, to wit, 
 trustworthiness of character and profitable employment 
 of the loan. Given these — and made secure — the 
 lender may count upon honest repayment, which is of 
 course all that security is intended to assure. Char- 
 acter alone has become a favourite ground with bank- 
 ers to lend upon. But they really as a rule know what 
 the applicant for credit is " worth " and there is gen- 
 erally a substratum of substantiality to support char- 
 acter. It is on such ground that substantial farmers 
 in the United States — whose ready command of bank- 
 ers' credit is sometimes quoted as disproving the af- 
 firmed necessity of a more popular form of credit — 
 obtain their loan money. However, theirs is not the 
 position of the great mass of farmers — and others — 
 for whom a new kind of credit is demanded. These 
 people may or may not be possessed of sufficient be- 
 longings to form a practicable " collateral." But they 
 are not in the same touch with bankers capable of lend- 
 ing, and could scarcely place themselves in such touch 
 without paying more for such advantage than the ad- 
 vantage might be found worth. 
 
 Therefore it becomes necessary in their case — the 
 case of millions — to provide some substitute for the 
 personal knowledge here spoken of, to constitute a
 
 32 CO-OPERATIVE CREDIT 
 
 bridge across the separating gulf, which will answer 
 the same purpose as personal acquaintance with head- 
 quarters. That substitute is the creation of an inter- 
 mediate body between the borrower and the original 
 lender, financially strong enough by its collective g-uar- 
 antee to secure the latter; and, beyond this, in a posi- 
 tion to exact proper eniplo^anent and enforce prompt 
 repayment to itself on the part of the former. The last 
 named is the main security. The intermediate body 
 is to be judge both of the propriety of the emplo^Tiient 
 given to the loan and of the quality of the borrower 
 and, having secured itself in these two essential re- 
 spects, it is in its turn to become surety for the loan to 
 the prime provider of the money. 
 
 There is a remarkably telling example of the efficacy 
 of this interlinking of interests in banking history. 
 Scotland has long taken prominent rank among bank- 
 ing countries by means of the excellence of its banking 
 institutions, w4iich have been mainly instrumental in 
 reclaiming that country from what one of its own sons, 
 the late 11. Dunning Macleod, has called '' the lowest 
 state of barbarism," to " its present proud position," 
 with farming, industry, shipping at the pitch of per- 
 fection. It is popularised credit, " Cash Credit," as 
 it is called — a system very like the English " Over- 
 draft," but " reduced to a much more regular system, 
 and governed by its own methodical rules and appro- 
 priated to certain practical purposes," which has ac- 
 complished this.^ Cash credit was not indeed orig- 
 
 1 See Henry Dunninrj Macleod, The Theory and Practice of 
 Banking. London, 1875.
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 33 
 
 inally introduced with anything like such an object 
 in view, Scotch banks — of which there were at the 
 time very few — were allowed the privilege of issuing 
 an unlimited amount of bank notes. Early in the 
 eighteenth century (beginning in 1704) the Bank of 
 Scotland — which was the old leading bank — began 
 the issue of one pound notes, for which in the ordinary 
 run of business it could not then find adequate em- 
 ployment. To make the comparative glut of paper 
 worse, in 1727 a rival bank was set up, in the Whig 
 interest — the Bank of Scotland being Jacobite in its 
 tendencies — with the same powers and an understood 
 injunction to " cut out " the older bank as much as it 
 could. To do this, the new institution, the Koyal Bank 
 of Scotland, hit upon the device of offering credit in its 
 one pound notes to whoever would provide adequate 
 security — mainly in the shape of sureties. Agencies 
 were opened all over the kingdom and the banknotes 
 were offered freely. From this new practice, which 
 as a matter of course other banks soon copied, has 
 sprung up that admirably organized, widely diffused 
 system of Scotch banking, in which productive credit 
 plays a leading part. However, it at the same time 
 greatly stimulated deposit banking. It became a com- 
 mon practice, even among small men, to " keep a 
 banker." And the unlimited issue of notes, with re- 
 gard to which fears might well have been entertained, 
 was soon found to correct itself. Every bank naturally 
 made it its aim, to place as many of its own notes as 
 possible on the market, and at the same time to with- 
 draw the notes of its rivals. So one bank came to col-
 
 34, CO-OPERATIVE CREDIT 
 
 lect all the notes of the other banks that it could, and 
 to present them for payment. There were fixed set- 
 tling days for such exchanges, and there was one grand 
 settling day, at Whitsuntide, when notes were often 
 hard to be got by the public, until the great cashing ex- 
 change was completed. Thus competition effectually 
 kept out what evils might have been looked for from 
 unlimited issue. The great development of banking, 
 which is peculiar to Scotland, and which serves alike 
 to stimulate enterprise and to keep specie in the banks, 
 is therefore to a very considerable extent distinctly 
 traceable to Cash Credit. 
 
 The object of banks, when practising cash credit, be- 
 ing to place as much of their paper money in circula- 
 tion as might be, without risk, they were bound — more 
 particularly under the pressure of competition — to 
 make things easy for intending borrowers — up to one 
 point. Every one was to be made welcome — but there 
 must in every case be adequate security. And as re- 
 gards security, a bank could obviously not very well 
 dabble in pledge credit, which might have proved ex- 
 ceedingly inconvenient to itself. It must have surety- 
 ship of such a kind that in the event of one man failing 
 to repay, there would be another to be held responsible, 
 so that in any case the value to be seized in satisfaction 
 would take the shape of money. As respects the 
 amount of security to be taken, Scotch bankers, being 
 eminently practical men, did not allow themselves to 
 be troubled with such fancies as are not a little in vogue 
 at the present time, binding themselves to fixed me- 
 chanical conditions. They understood well enough
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 35 
 
 that in matters of credit every case must be judged 
 by itself and on its own merits. Accordingly they 
 asked in every case for just as many sureties as might 
 to themselves appear called for — one, or tw^o, or six, 
 or more. There have been as many as ten. Scotch 
 farmers and tradespeople, on the other hand, were far 
 too canny to allow themselves to be frightened, as peo- 
 ple nowadays appear disposed to be, by such precau- 
 tions. They wanted the money; they knew after cal- 
 culation that it would be w^orth their while to borrow 
 it. And so they willingly provided the security re- 
 quired. The result is what we now see in Scotland. 
 '" The far-famed agriculture of the Lothians," so writes 
 Macleod, " the manufactures of Glasgow and Paisley, 
 the unrivalled steamships of the Clyde, are its own 
 proper children" (the children of Cash Credit). "A 
 friend of mine," so Mr. Fowler stated some time ago 
 at the Bankers' Institute, (in London) " was travelling 
 in one of the southern counties of Scotland and there 
 was pointed out to him a valley covered with beautiful 
 farms. My friend was an Englishman, and his com- 
 panion, who was a Scotchman, pointed down the valley 
 and said : ' That has all been done by the banks,' in- 
 timating his strong opinion that but for the banking 
 system of Scotland (the cash credit) the development 
 of agriculture would be in its infancy compared to 
 what it is now." 
 
 When, something like twenty years ago, I lectured 
 in a committee room of the British House of Commons 
 upon co-operative banking, the late Mr. Beith, a Scotch 
 member — and if I mistake not, at that time chairman
 
 36 CO-OPERATIVE CREDIT 
 
 of the Glasgow Chamber of Commerce — patted me 
 approvingly on the shoulder and said words to this 
 effect : " You are right ; I am a wealthy man now ; it 
 is a cash credit of £2,000 which I received when I was 
 young, which has made me so ; we want to do for those 
 less well off than ourselves what has been done for 
 
 us." 
 
 In 1826, when the currency question was so promi- 
 nently before the public in Great Britain that either 
 House of Parliament appointed a Select Committee to 
 inquire into it, those Committees reported specifically 
 upon Cash Credit in the following way : — " There 
 is one part of this system which is stated by all wit- 
 nesses (and, in the opinion of the Committee, is very 
 justly stated) to have had the best effects upon the 
 people of Scotland, and particularly upon the middle 
 and poorer classes of society, in producing and en- 
 couraging habits of frugality and industry. The prac- 
 tice referred to is that of cash credits . . . From the 
 facility which these cash credits give to all the small 
 transactions of the country, and from the opportuni- 
 ties which they afford to persons who begin business 
 with little or no capital but their character, to employ 
 profitably the minutest products of their industry, it 
 cannot be doubted that the most important advantages 
 are derived in the whole community . . . The wit- 
 nesses whose evidence we have quoted stated that they 
 calculated that the number of persons who had cash 
 credits granted to them amounted to about 10,000 or 
 11,000, and, as the average number of securities to 
 each bond might be taken as three, there were about
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 37 
 
 30,000 persons interested as securities, so that the total 
 number of persons at that period interested in the sys- 
 tem was at least 40,000. The banks were then supposed 
 to be under engagements of that sort to the amount 
 of £0,000,000, of which about two thirds were drawn 
 out " . . . " the practical effect of which is," so says 
 one witness quoted, " that the sureties do in a greater or 
 less degree keep an attentive eye upon the future trans- 
 actions and character of the person for whom they have 
 thus pledged themselves; and it is perhaps difficult for 
 those who are not intimately acquainted with it to con- 
 ceive the moral check which is afforded upon the con- 
 duct of the members of a great trading community, 
 who are thus directly interested in the integrity, pru- 
 dence and success of each other. It rarely, indeed, if 
 ever, happens that banks suffer loss by small cash ad- 
 vances." " This system," so the Report quoted con- 
 tinues, " has a great effect upon the moral habits of 
 the people, because those who are securities feel an 
 interest in watching over their conduct; and if they 
 find that they are misconducting themselves, they be- 
 come apprehensive of being brought into risk and loss 
 from having become their sureties; and if they find 
 they are so misconducting themselves, they withdraw 
 the security." It is the linking together of close local 
 and personal knowledge, which can discriminate be- 
 tween good cases and bad, deserving borrowers and 
 undeserving, the joining of interest, of responsibility 
 entered into, with the power of enforcing responsibility 
 in others, which supply backbone to the system. There 
 must be touch, power of control, knowledge of mem- 
 
 ^Q.0^4 0/1 
 
 t2 iji<^ ^tJ':
 
 38 CO-OPERATIVE CREDIT 
 
 bers among themselves, and a common interest, whicli 
 carries the security of the pledge given far beyond what 
 a writ or a summons could do. 
 
 Now all this is excellent so far as it goes. But it 
 applies in each case to one transaction only. As a 
 rule it means that a man, in whose honesty and capacity 
 for business his bondsmen have faith, obtains a stand- 
 ing overdraft, rather large in comparison with his im- 
 mediate requirements, to set him up in business. That 
 overdraft will run on, if the borrower conducts him- 
 self well, till he sees his way to throw off the burden, 
 as an owner of land might throw off a mortgage debt. 
 It does not correspond to the credit of a merchant, who 
 draws a bill to take up money just as he wants it and 
 gets rid of his debt as soon as the transaction is com- 
 pleted. There is no " quickness " about it — except 
 that the account must not remain unused — no elastic- 
 ity, no rapid reproductiveness. It is highly useful in 
 its way. But it does not supply all that is wanted. 
 And in many cases that are otherwise good it must re- 
 main impracticable. For it is not every one to whom 
 bondsmen would be prepared to guarantee an overdraft, 
 which might — just like possession of the money — 
 prove a temptation to improvident emplo\Taent. It is 
 here presumed that we want to help smaller men than 
 those who in Scotland benefit by cash credit, as well as 
 men of the same standing; and also that we want to 
 help them to occasional credit as well as to a standing 
 overdraft. Cash credits for the most part — still, as 
 in 182G — nm into $1,000 to $2,500. They mount up 
 to considerably larger sums, but they practically never
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 39 
 
 descend below $500, never at all below $250. Such 
 credits, practically for the endowment of a business, 
 would help us only up to a limited point. Our smaller 
 man may be perfectly safe to be trusted with a loan 
 for a certain approved emplo;>TQent under conditions 
 which make the employment of the loan itself a pledge 
 for repajTuent, whereas it would be risky to guarantee 
 him an overdraft. Overdrafts, practised avowedly for 
 convenience — have under unsuitable circumstances of 
 late years led to rather considerable losses. Besides, 
 although as an overdraft the loan becomes in a man- 
 ner permanent, the arrangement creates no institution 
 of any assured endurance. While our borrower keeps 
 his credit employed — keeping money passing in and 
 out the banker's till — and otherwise conducts himself 
 well, he is likely to retain it. But he remains de- 
 pendent upon an institution outside himself — with, 
 in addition, an interest different from his own — will- 
 ing to help him, but willing to do so only in its own 
 interest, for the purpose of benefiting, not him, but it- 
 self. That may go on or it may not. The arrange- 
 ment does nothing in itself permanently to improve the 
 borrower's position. And, of course, it is not " Co- 
 operation " — it is profitseeking trading between one 
 man and another. 
 
 Also, as I have been assured by one who at the time 
 was probably the highest authority on the point, there 
 is a certain stationariness about Scotch cash credit. 
 It has rendered most valuable service. But it does 
 not expand. Evidently in the more densely populated 
 world of the present day, with its infinitely more varied,
 
 40 CO-OPERATIVE CREDIT 
 
 multiplied and democratised enterprises, something 
 more is needed. 
 
 That "something more " Co-operation supplies. It 
 widens very perceptibly the area to be ministered to, 
 taking in considerably increased numbers of potential 
 beneficiaries, and it gets rid of the outside toll-taking 
 institution with a distinct interest, and a will of its 
 own (which may any day dictate discontinuance of 
 business relations) and a desire for profit out of bor- 
 rowers' pockets. 
 
 Under this system the supremely important element 
 of watching the borrower, judging in each case of his 
 qualifications and claims, and holding him to account, 
 through neighbours, under whose eyes he lives, is re- 
 tained, and is, indeed, carried further. The number 
 of bondsmen and watchers is increased and the ring 
 formed by them is doubled. The uses to which the 
 credit may be put are multiplied and carried consider- 
 ably lower. Scotch cash credit was never intended to 
 serve for single transactions, such as the purchase of 
 a cow, or an implement, or manure, or else a sewing 
 machine for a poor woman, or raw material or tools 
 for a craftsman. -But these objects want to be pro- 
 vided for. It is the co-operative bank's aim to dive 
 down low. Its object is, moreover, to become an 
 institution of members, with only one, common, inter- 
 est, a bank owned by the borrowers themselves, in 
 which no profit will be made out of one man for another 
 man's benefit, but a bank rendering a service at cost 
 price, and an institution upon which members can de- 
 pend, from which they will be entitled to claim a ser-
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 41 
 
 vice in their own right, so long as their case is good, 
 and which cannot capriciously say them nay, as a 
 banker or capitalist might. 
 
 That means, among other things that, while using 
 the bank for credits, members must also at the same 
 time have a steady eye to the continuous strengthening 
 of its financial position, which in its turn means that 
 members cannot be content with securing an occasional 
 convenience out of it, but that in their own interest 
 they must use it as a permanent means for their own 
 financial betterment. To this end they must practise 
 thrift as well as credit. For the bank is to grow stead- 
 ily stronger. And so are members as well. Coming 
 to it as non-capitalists, they are to make it their en- 
 deavour to emerge from it as in some sense capital- 
 ists. 
 
 A co-operative bank therefore means considerably 
 more than a mere borrowing convenience. In return 
 it yields far larger and more enduring benefits. The 
 test of its quality, however, will be its capacity to make 
 lending safe, to ensure repayment and businesslike deal- 
 ing with money. Once it can do this, its progress may 
 be taken as assured. The acquisition of the neces- 
 sary funds can under such circumstances be at worst 
 only a question of time. For capital studiously seeks 
 safe employment. And capital is plentiful in the 
 world. 
 
 The bank, thougb essentially " provident " in its 
 aims, differs in this from friendly societies and also 
 from Building and Loan Associations, that it does not 
 propose simply to collect members' own contributions,
 
 42 CO-OPERATIVE CREDIT 
 
 and deal them out again to members, but that it makes 
 it its business to cater for its members in a much wider 
 sphere, seeking to attract money for members' use from 
 non-members as well as from members. Once it can 
 prove that it deals with such money safely, there can 
 be no question of the required cash flowing into its 
 till, be it in the shape of specific loans or in that of 
 deposits. Deposits, of course, are, as we shall still 
 see, its most desirable resource, because deposits are 
 likely to be cheapest and also steadiest, and interfering 
 least with the bank's independence. They come from 
 a good many more different pockets than do specific 
 loans, and therefore are not likely to be withdrawn in 
 a lump. Generally speaking, they make '' good, lying 
 money." Schulze-Delitzsch, who first introduced this 
 kind of banking in Germany, would have his banks 
 " sweep their several districts bare of all spare cash " 
 — become the recognised depositing receptacle for their 
 local sphere. M. Luzzatti, in Italy, likewise lays great 
 stress upon the action of his banks as thrift institutions, 
 dubbing them " perfected savings banks." And in the 
 little banks of the Eaiifeisen type systematic collection 
 of savings deposits is made a main point. 
 
 But the success of all this obviously must be condi- 
 tional upon the co-operative bank first proving that it 
 is a safe institution to lend to, not so much because 
 it has the joint liability of a large number of people 
 to answer to creditors — that is rather its coHateral 
 than its effective security — as because it knows how in 
 its dealings with money itself to avoid loss. 
 
 Such object is attainable by more methods than one,
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 43 
 
 to suit the several circumstances; but there are certain 
 features common to all. 
 
 One such feature, of paramount importance, is this, 
 that under all circumstances, whatever be the consti- 
 tution or the size of the bank, its first interest must be 
 to satisfy, not the borrower, but the lender of money. 
 
 It is quite rightly urged that, the bank avowedly be- 
 ing " a bank of borrowers," borrowers' interest must 
 always stand first. So it must. However the borrow- 
 ers' first interest is that they should obtain the money 
 which they want, and obtain it honestly, as a matter of 
 business, not of charity. There are not a few people 
 who try to wriggle out of this. They grudge the lia- 
 bility ; they grudge the shares ; they grudge the trouble ; 
 and they grudge the submission to inspection. The 
 ripe fruit is just to drop into their lap. Hence, in 
 addition to a variety of fancy schemes, which of course 
 never work, we have those quite un-co-operative elabora- 
 tions which place taxpayers' and charitable people's 
 money at the service of professing co-operative banks, 
 to be distributed like heaven-sent "manna," under 
 which permanent good can never be achieved. Credit 
 will do good when it is honestly purchased and paid 
 for. And the proper price for credit is security. The 
 better the security, the more certain and the cheaper 
 will be the supply of money. Our object, as has al- 
 ready been explained, is to convert dormant, potential 
 security — such as the money market cannot now ac- 
 cept, but which is all that we have to offer — into ef- 
 fective security, which it can. That is not to be done 
 without trouble and liability. Such trouble and liabil-
 
 44 CO-OPERATIVE CREDIT 
 
 ity should not be grudged. We have to pay the price, 
 and should be wrong in making wry faces over it. To a 
 co-operator it is pitiful to see how willing some people 
 are, for the sake of a little unpurchased credit, which 
 may cease any moment, and which produces no lasting 
 good, to sacrifice all the more valuable benefits of co- 
 operation, above all things their independence and the 
 permanence of a self-supporting institution of their 
 own. 
 
 This being premised, the common rules applying to 
 co-operative banks of all descriptions may be summed 
 up as follows. There must, in the first place, be a 
 collective liability of all members. As against claim- 
 ants these must present a united front. That does not 
 mean that the liability must necessarily be unlimited, 
 all for one and one for all; for it may very well be 
 otherwise ; but it means that whatsoever money is raised 
 is raised and answered for by the bank as a wliole. 
 Distribution of liability must be left to go on inside. 
 
 The foundation so laid will, furthermore, have to 
 be steadily and systematically strengthened — whether 
 there be shares or no — by regular additions to the 
 bank's capital in the shape, it may be, of increased 
 share capital or, in any case, of a growing reserve fund. 
 Such additions should be the first consideration in mak- 
 ing up the annual balance sheet. Dividend must stand 
 only second. There are co-operative banks which have 
 rapidly grown strong by designedly charging members, 
 with the members' consent, in early years a rather 
 higher rate of interest on loans than would have been 
 strictly necessary, for the sake of creating a fairly sub-
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 45 
 
 stantial reserve fund, which places a bank above dan- 
 ger and greatly increases confidence in it. That tem- 
 porary trifling sacrifice has well repaid itself. If the 
 bank is at all large, there will in course of time have 
 to be several reserve funds, to provide for distinct risks, 
 such as depreciation. But one main reserve fund, kept 
 steadily growing, there will in any case have to be. 
 
 It may be well at this point to call attention to the 
 fact, how much, apart from strengthening the bank by 
 an immediate capitalist benefit, gathering up a sub- 
 stantial reserve fund will do to ensure permanence to 
 the institution, by keeping members in it. The reserve 
 fund is the bank's collective property — until dissolu- 
 tion. And a good many co-operative banks have 
 adopted the rule that even in the event of dissolution 
 reserve shall not be shared out. That does a great deal 
 to keep members in the bank — and the more, the larger 
 the reserve fund is, from which members in the bank 
 derive benefit which they would forego by going out. 
 And members staying in means that the bank will en- 
 dure. 
 
 Although founders of a bank need not be overtimid 
 about beginning business with only a small number of 
 members, other things being equal — mutual touch and 
 the possibility of effective control being assured — a 
 large number of members is a distinct advantage. 
 
 Another useful means of attaching members to their 
 bank is, to ask of them an entrance fee, which should 
 be moderate, and will of course be irrecoverable. Raif- 
 feisen did not want an entrance fee, because he was op- 
 posed to taxing incoming members — whom mere pov-
 
 46 CO-OPERATIVE CREDIT 
 
 erty was not to keep out — at all. However entrance 
 fees will provide for minor wants, especially in a bank 
 newly formed and still in a stage of financial weak- 
 ness; and, being irrecoverable, they will help to keep 
 members in the bank. 
 
 In borrowing money the bank will do well to bargain 
 in respect of the funds borrowed for a lengthened pe- 
 riod, although of course it must avoid burdening itself 
 with long term loans beyond what it is likely to be able 
 to employ. But it is a great convenience to have some 
 money that may be depended upon for a good long time. 
 In respect of deposits, however strong the temptation 
 may be to do so, on prudential ground, it is not good 
 policy to insist too much upon long notice — except 
 that be by arrangement, a triflingly higher rate of in- 
 terest being allowed upon time deposits. Whether 
 notice be stipulated for or not, it is good policy to waive 
 that condition as much as is possible in practice. 
 Nothing helps a savings bank so much to collect de- 
 posits as a knowledge among depositors that it will be 
 prepared to repay them on demand. 
 
 In dealing with its money — borrowed money it 
 will be — a co-operative bank will above all things have 
 to study absolute safety. It cannot afford to run risks. 
 It is there to eliminate middleman's profit for the ben- 
 efit of its members, but not to earn a profit either for 
 them individually or for itself collectively. There is 
 great danger in profitseeking for profit's sake, as not 
 a few co-operative banks have been made to discover. 
 The benefit that the bank is designed to yield is that of 
 a useful, cheap and ever accessible service. Accord-
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 47 
 
 ingly it is a common rule in all co-operative banks that 
 any employment which involves risk must be altogether 
 avoided, no matter whether it be in loans to members 
 or in other investment of bank money. 
 
 Thus, in the first place, the bank must make sure 
 that it has prima facie trustworthy customers to deal 
 with. As a general rule, lending must be confined to 
 members. It would not however do to press such lim- 
 itation unduly, in view of this not unlikely occurrence. 
 The bank may have more money on hand than it knows 
 how to employ in loans to members. Such cases have 
 occurred and are likely to occur again, however care- 
 fully they be guarded against. In Germany, about 
 1895, there was a glut of money unasked for. Such 
 money cannot be kept idle without loss of interest, 
 such as the bank ought to desire to avoid. Under such 
 circumstances a bank might refuse to take further de- 
 posits or might even pay off some of those that it holds, 
 in order to ease itself. However that is apt to unsettle 
 business and is not invariably acceptable to members. 
 Under such circumstances it ought to be permissible 
 to place some of the surplus money, should the oppor- 
 tunity offer, in an exceptional way, in the shape of 
 loans even to non-member institutions or capitalists of 
 undoubted solvency. The ordinary current loan bus- 
 iness, which is what the bank was formed for, how- 
 ever, should be confined to members only. Those mem- 
 bers must be, not admitted indiscriminately, upon the 
 principle " the more the merrier." The more there 
 are, no doubt, the more business there is likely to be, 
 and the better, accordingly, may the bank fare finan-
 
 48 CO-OPERATIVE CREDIT 
 
 cially. However business for business' sake is not 
 what the bank was formed for. It is to serve mem- 
 bers, and to do so by studying security. And, in the 
 words of M. Luzzatti, the " father " of the successful 
 co-operative credit movement in Italy, " the best se- 
 curity of a co-operative bank is the moral worth of its 
 members." It is better to have a smaller number of 
 trustworthy members than a large one of men who are 
 not trustworthy. The bank should therefore exercise 
 a reasonable amount of care in the admission of mem- 
 bers. 
 
 The members being selected, it goes without saying 
 that the government of the bank must be thoroughly 
 democratic, " of the members, by the members, for the 
 members." The supreme authority must in any case 
 be vested in the general meeting. The governing bod- 
 ies should be freely elected, without respect of person 
 and capital should have no say in the determination of 
 matters. There must be " one man one vote." The so- 
 ciety is a union, not of capitals, but of members, whose 
 capital payment is not an investment in the ordinary 
 sense — it cannot be sold — but a stake. The dividend 
 on capital must be limited to a moderate rate. If more 
 were to be earned than will pay the interest fixed for 
 share capital, it ought — as in the co-operative store — 
 to go to " business," in proportion to business done. 
 That will mean, not a gain to the receiver, but a restitu- 
 tion of what was (for safety's sake) first taken in excess 
 of actual cost. The bank is there to study cheapness in 
 loaning for its members and if at the end of the year 
 there should be more over than is necessary for main-
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 49 
 
 taining a good balance, with an allowance for reserve, 
 that is a proof that too high interest has been charged ; 
 and, if there is a prospect of the same state of things 
 continuing, rather should interest be lowered than 
 dividend paid. 
 
 In its fixing of rates of interest the bank can of 
 course not commit itself to a hard and fast rule, as is 
 sometimes demanded. It is there to provide cheap 
 money — if it can. But its first duty is to make ends 
 meet. If it have active business, it will be able to fix 
 its rate low and work with a narrow margin. Should 
 its business be slack, the margin between interest 
 charged and interest allowed may have to be consider- 
 able. In a bank peculiarly situated in Italy I have 
 found as much as 2 per cent, margin. The bank will 
 in every case have to cut its coat according to its cloth. 
 
 The bank being formed to render a service, it is its 
 business to inquire beforehand if, in the case of a loan 
 applied for, a service will really be rendered. That 
 means that it must know something about the employ- 
 ment of the loan. For it is not there to encourage in- 
 discriminate running into debt, but distinctly only to 
 favour such going into debt as is justifiable as promis- 
 ing a remunerative return. In some banks, as will be 
 shown, the scrutiny of the object of a loan will have 
 to be carried to an extreme point and the borrower will 
 have to be rigorously tied down to that employment. 
 In such cases the employment of the loan itself be- 
 comes a security for the loan. In any case sufiicient 
 should be known to satisfy the bank that the em- 
 ployment will be a good one, ensuring either profit-
 
 50 CO-OPERATIVE CREDIT 
 
 able production or else economy, and that it is appro- 
 priate to the particular borrower. In the event of any 
 loan being wrongly employed, whatever punitive re- 
 sources the bank retain in its hand, it will in any case 
 be able to safeguard itself for the future by refusing 
 the peccant borrower any further credit. But it is as 
 well to make sure of being on the right side from the 
 outset. 
 
 That is, however, not enough. As the bank pledges 
 itself specifically to the original provider of the money, 
 so it will have to take specific security from its borrow- 
 ing member beyond what is provided for by the general 
 precautions already mentioned. 
 
 Now the point of security raises rather a wide ques- 
 tion. What is the best form of security to take ? We 
 are so used to pledge credit that we almost instinctively 
 turn first to such securities as mortgages, chattel mort- 
 gages or crop liens, which provide a visible object such 
 as in case of default may be seized in satisfaction. 
 However by common consent these would be most in- 
 convenient securities for a hanh to hold, more particu- 
 larly a co-operative bank, which is differentiated from 
 other banks by dealing as a rule with a much smaller 
 capital. Borrowers may after all default; and then 
 what is the bank to do with its white elephant of a 
 pledge? A co-operative bank in Cannstadt in Ger- 
 many lent money on a theatre. It had to foreclose, and 
 the theatre was a burden on its hands. Another co- 
 operative bank in the South of Germany lent money 
 on a waterraill. The mill was carried away by a flood 
 ■ — and where was its security ? There are cases in
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 51 
 
 which the matter practically^ reduces itself to Hobson's 
 choice. There must be adequate security of some sort ; 
 and the bank will have to accept from the borrower 
 whatever he may have to offer. However it has long 
 since become the common rule to avoid pledges of all 
 sorts — more particularly mortgages, as locking up cap- 
 ital — and if they must be taken, to take them only 
 as collateral security. The regulation form of secur- 
 ity should be personal. 
 
 This is more than a question merely of convenience. 
 Pledge credit, in the late Leon Say's words, denotes 
 " the infancy of credit." It represents a quite elemen- 
 tary form of credit, in a stage of undeveloped resources. 
 We ought to have grown sufficiently beyond that stage 
 to want to " cast away childish things." Pledge credit 
 necessarily tends to weaken the sense of responsibility. 
 The borrower is tempted to comfort himself with the 
 reflection that, whther he repay at the promised time 
 or not, there is the pledge ! The lender accordingly is 
 secured. Therefore it enfeebles the sense of obliga- 
 tion and trains away from businesslike dealing, which 
 it is essential should be as much as possible pressed 
 home, more particularly upon such clientele as the co- 
 operative bank is likely to possess, coming newly to the 
 practice of credit and wanting to be taught. Certainly 
 the pledge weakens the sense of being bound to a par- 
 ticular date, which is one of the most important lessons 
 of credit to inculcate. Por a bank whose borrowers do 
 not repay promptly, which is therefore left in doubt as 
 to when its money will come in, is on the high road to 
 insolvency. Purthermore the pledge potentially places
 
 52 CO-OPERATIVE CREDIT 
 
 a useful object out of use. That constitutes a tax upon 
 the borrower. Personal credit is free from all these 
 defects. It takes nothing away from any one; it does 
 not inconvenience the lender in any way; it decidedly 
 quickens the sense of responsibility, with respect to time 
 as otherwise; and it automatically educates the bor- 
 rower to businesslike practices. It sharpens his wits, 
 it teaches hira to calculate before he stakes, it forces 
 him to reckon up gain and loss and, in the place of 
 saddling the lender with an inconvenient encumbrance, 
 it may provide him with a security which may in case 
 of need be employed to provide fresh money. That is, 
 if the record of the loan take the shape of a promissory 
 note, a bill of exchange or an acceptance, which three 
 forms, being alike discountable, are the most conven- 
 ient from the point of view of the bank. Discounting, 
 to raise fresh money, may indeed become a source of 
 gain to the bank, whose endorsement is likely to com- 
 mand a lower rate of discount than itself charged to its 
 member. In any case personal credit is desirable. 
 
 The acceptance of personal security does not of 
 course necessarily mean that the borrower is to be 
 trusted on his own undertaking only to repay. Cases 
 in which this is admissible will occur. But they are 
 likely — and ought — to be few. As a rule some other 
 security will have to be asked for — were it only to 
 train members to a practice which for many of them is 
 likely to be novel. And that security had much the 
 best take the shape of suretyship — suretyship propor- 
 tioned to the loan and to the borrower's supposed trust- 
 worthiness. On this point it is impossible to lay down
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 53 
 
 any hard acd fast rule, say so many sureties. One man 
 may want more backing than another, and one surety 
 may be worth half a dozen others. Credit is a delicate 
 commodity, which wants to be delicately handled. 
 Every case will require to be judged by itself. You 
 cannot lay it down that there shall be one, or two, or 
 three signatures. Under Scotch cash credit there have 
 been as many as ten. That is an extreme case. But 
 in any case the security will have to be fixed according 
 to the amount of risk incurred. 
 
 It is a mistake to suppose that the sureties must 
 needs be members of the bank. The bank should give 
 only to members ; it may take from any one. In truth, 
 a surety — being first approved, of course — not being a 
 member of the bank, rather tends to strengthen the 
 bank, as buttressing it with outside support. The one 
 thing needful is that the surety be sufficient for its pur- 
 pose, and that its willingness to serve should be ascer- 
 tained beyond doubt. 
 
 There is a practice in use in some parts of privately 
 appraising members — borrowers or sureties — accord- 
 ing to what is in America known as " financial rating." 
 In some cases such appraisement is not private, but 
 " Smith " knows that he is set down as good for $1,000, 
 "Jones" for $5,000, and "Brown" for $20,000 — 
 which means that, as a matter of convenience, the man- 
 ager of the bank is authorised to lend to each, without 
 asking for further security, up to the sum named. The 
 three may combine for one or other of them to raise 
 $2G,000 on the three signatures. This is not a prin- 
 ciple which it is advisable to rely upon exclusively. In
 
 54> CO-OPERATIVE CREDIT 
 
 large banks a financial rating is a help for tke manager. 
 But it represents a departure from the co-operative 
 rule of watching over the emplojTuent of the money 
 borrowed. Its use, as above instanced, weakens con- 
 trol, such as in a co-operative bank — which is bound 
 to supply in "elbow grease" what it cannot, on the 
 ground of the comparative exiguity of its means, supply 
 in money — it is of the utmost importance should be 
 kept active ; and it is apt to weaken that peculiar per- 
 sonal interest and identification of every member with 
 *;he bank as a whole, on which the success of a co-oper- 
 ative bank greatly depends. Indeed, in such a society 
 everything which tends to mechanical routine is to be 
 deprecated. 
 
 Provided that all ordinary business precautions have 
 been observed, the sureties referred to act in the case 
 of a co-operative bank precisely in the same way that 
 they would do under Scotch cash credit, that is to say, 
 they keep the borrower under control and see, in their 
 own interest, that he fulfils his duty ; and their action 
 has the same beneficent educating and restraining 
 effect. 
 
 But to make sure of the observance of the prescribed 
 precautions it is necessary — and the common prac- 
 tice — to maintain a system of control which is as 
 searching as it is self -regulating. In the first place 
 there is what the late Sir Bobert Morier with good 
 reason laid particular stress upon, namely, a "maxi- 
 mum of publicity." There is nothing in these banks 
 which wants to be kept secret — except the deposit 
 account of each member, about which not a hint nor
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 55 
 
 a whisper must get abroad. Tliat may very well be 
 done. There are very humble people in some of these 
 banks, who would not wish the amount of their deposits 
 to be disclosed. In English trustee savings banks we 
 have had workingmen depositors shrinking back and 
 leaving the bank when they discovered that their em- 
 ployers were among the trustees or managers. Apart 
 from the deposit accounts, however, the more public 
 everything is, the better will the bank fare. Publicity 
 acts like oxygen in the atmosphere, to keep things sweet 
 and clean. Mutual watching and knowledge of one 
 another and of all goings on are necessary as one of 
 the substitutes resorted to for the cash which is more 
 plentiful in capitalist institutions and there plays the 
 chief rule. The security which the bank offers to its 
 lenders is the certainty that money loaned will be re- 
 paid. That is the meaning of "security " in any case. 
 The capitalist gives it by pledging something salable 
 of higher value than his own debt. The non-capitalist 
 cannot provide such article. But he can provide some- 
 thing which in his own case is equally effective — the 
 pressure which his classmates and comrades, who make 
 themselves liable for his debt, who have him under 
 their eye, and whose good opinion he is bound to de- 
 sire to retain, exercise upon the borrower. Such se- 
 curity has been found effective in all grades of the 
 social scale. It is dependent for its effectiveness upon 
 control. And control begins with the knowledge of 
 what the man is committed to with his bank, and, more 
 generally, in what way the bank's money is employed. 
 However, to have its full effect, the cult of publicity
 
 56 CO-OPERATIVE CREDIT 
 
 should, in its bolder features, be carried beyond the 
 limits of the society itself. The bank lives upon the 
 confidence that it can inspire in others. It wants 
 money from outside. Hence the outside public should 
 be made aware how its affairs stand at any time. It 
 does not follow that every detail should be made public, 
 that the public should be made to know who has bor- 
 rowed and who has not. But the balance sheet ought 
 to be allowed to become public property. There is 
 nothing to secure confidence like continuous good man- 
 agement, which can be proclaimed only by the balance 
 sheet made public. The great Co-operative People's 
 Bank of Milan, which now has a share capital of hun- 
 dreds of thousands, began with only $140. It secured 
 the confidence of the public by posting its daily balance 
 sheet outside its humble office every night, for the pub- 
 lic to see. And those who came to scoff remained to 
 applaud, when they had satisfied themselves how well 
 the bank was doing and to advertise it. The successful 
 co-operative bank of Mentone, which likewise began 
 in a humble way, at a time of local panic, after the 
 breakdown of other local banks, at once gained public 
 confidence in the same way. 
 
 That bank, by the way, teaches another useful lesson, 
 which, after the bank crashes in Australia, it was 
 thought might have to be taken advantage of in that 
 country. After the smashes that had occurred in 
 Mentone at the time all confidence in banks as an in- 
 stitution seemed gone. It is doubtful if a new capita- 
 list bank opening its doors at that time would have 
 found custom. But here was a bank of the customers
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 57 
 
 themselves, owned by them, managed by them, answer- 
 able to them, dealing with their own money! Under 
 such circumstances comparative poverty achieved read- 
 ily what wealth might have failed to accomplish. The 
 competence of the officers chosen had not a little to 
 answer for iu the success. But the main reason was 
 the bank's co-operative character, with everything open 
 and ascertainable by those who used it and whose 
 money was at stake. 
 
 The entire structure of a co-operative bank rests upon 
 the foundation of effective control, which is not possible 
 ■without all facts being placed within reach of inquirers. 
 The affairs of the bank are administered by an elected 
 Committee. But that committee is effectively con- 
 trolled by a Council of Inspection or Supervision — 
 which under the German law, now accepted as the best 
 for the purpose, really represents, so to put it, the 
 " Board " of a Company, the Managing Committee 
 standing, as the executive organ, for the administering 
 '' Manager." We have here not a question of presum- 
 able dishonesty to deal with — although dishonesty 
 naturally has to be guarded against. However the 
 Committee is human; it acts among neighbours; its 
 members are likely to have sympathetic chords in their 
 hearts. Should they not stretch a point to oblige their 
 neighbour? They might be tempted to do so. But 
 there is the Council to check their doings — the Coun- 
 cil, which in course of time, will report to the General 
 Meeting and may haul the Committee over the coals 
 at any time. The Committee's answer to its ap- 
 plicant will accordingly be : — " My dear fellow, we
 
 58 CO-OPERATIVE CREDIT 
 
 cannot stretch the point; the Council will not let us." 
 Or it may be that a salaried member of the Committee, 
 to whom his small honorarium is of consequence, is 
 threatened by an importunate but questionable ap- 
 plicant: •' I shall not vote for your re-election." Once 
 more, his answer will be that he cannot give way. 
 Above the Council of course there is the General Meet- 
 ing, which is lord supreme in its own domain, and 
 which can, obviously, adjudicate upon cases specially 
 referred to it. And it is rightly usual now — indeed 
 some Governments have very properly made it obliga- 
 tory — to supplement the checking of the Council of 
 Inspection — which brings local knowledge, knowledge 
 of the members, to its task, by a further checking by a 
 shilled accountant, trained to this particular work, who 
 knows more about general banking and whose assistance 
 in the matter has been found highly useful. Special 
 consideration will still be given to this point. 
 
 The points here enumerated practically sum up the 
 structure of a co-operative bank or credit society in its 
 general features. There will have to be selection of 
 members, to ensure prima facie trustworthiness ; dis- 
 crimination in respect of loans; adequate security for 
 sueli ; strictness in exacting observance of rules ; 
 responsibility divided down so as to leave no act un- 
 answered for; and such responsibility brought home to 
 everv one bv searching control. All risk must be 
 avoided on principle. Wherever long term credit is 
 required, as in agriculture — supposing that the bank 
 is based upon shares, that is, upon a rapid circulation 
 of money in general — there ought certainly to be a
 
 PRINCIPLES OF CO-OPERATIVE CREDIT 59 
 
 mingling of callings, so as to produce a balance of de- 
 mand and supply, which is an advantage in any case. 
 Some continental Governments in Europe, thinking 
 more of politics than of co-operative economics, have 
 made it a practice to favour the formation of particular 
 banks for particular callings — agriculture, and also 
 distinctive industrial trades. Hov^ever the result has 
 not been universally successful. And it stands to rea- 
 son, on economic grounds. Men of one calling are 
 likely to require their money all at the same time and 
 to want to pay it back also all at the same time — which 
 means that at one season the bank will be overburdened 
 with cash, at another at its wit's end to provide for 
 demands coming crowding in. Under such conditions 
 good business is impossible. The more differing ele- 
 ments are brought in, to dovetail into one another, not 
 only the more will business tend to balance itself, the 
 wants of one calling coinciding with the superfluity of 
 the other, but the broader also will be the foundation, 
 the more assured accordingly the stability of the bank. 
 Of course the little bank, with its more or less 
 amateur managers, will have to make it a rule to con- 
 fine itself strictly to its own proper business, for which 
 it is organised. The temptation may be great some- 
 times to step outside, .in order to engage in more re- 
 munerative business. But there is danger in this. A 
 spade will not carve a joint, nor will a carving knife 
 dig a trench. It may be well that attention should be 
 called to this, as likely to reassure joint stock and pri- 
 vate banks on the score of possible rivalry. Co-opera- 
 tive banks will have their own sphere to work in,
 
 60 CO-OPERATIVE CREDIT 
 
 beyond which they should not go — and would go only 
 at their own peril. The late Leon d'Andrimont, the 
 " father " of the Belgian co-operative banking move- 
 ment, wanted to tie his co-operative bank down even to 
 a limit in amount of money loaned. 
 
 If all the rules here laid down are properly observed, 
 in the words of the Hon. Maggiorino Ferraris, late 
 Italian Minister of Posts and Telegraphs, who has 
 long been one of the recognised leaders of the co-opera- 
 tive credit movement in Italy, " it is inconceivable how 
 a People's Bank could go wrong." 
 
 The several models upon which such a bank may 
 be moulded will be discussed in the succeeding chapters.
 
 CHAPTER III 
 
 CO-OPEKATIVE BANKS BASED UPON SHARE CAPIT'AI, 
 
 The type of organisation suited for a co-operative 
 bank likely at first blush to commend itself most to 
 American and English pioneers is that which makes 
 such institution most nearly resemble a joint stock com- 
 pany. We can all understand shares. There must be 
 working capital. And we can understand share capital 
 being remunerated by dividend. A co-operative society 
 will of course have to be careful to eliminate from its 
 constitution those particular features of joint stock prac- 
 tice which distinctly militate against co-operative prin- 
 ciple. Thus there will have to be a limitation of 
 interest payable on capital. Eor a co-operative society, 
 being a union of members, not of capitals, employs capi- 
 tal only as a hired instrument of business. Voting in it 
 will have to be, not by shares, but by members, whatever 
 their holdings may be. There may furthermore be 
 dividend on business, corresponding to that which is 
 allowed on purchase in a co-operative store. Apart 
 from this, transactions are naturally likely to be gen- 
 erally smaller — and it may be less varied — than in 
 a joint stock company, which of course — being in 
 quest of profit — lays itself out for a maximum of bus- 
 iness, whereas the co-operative bank studies merely to 
 
 61
 
 62 CO-OPERATIVE CREDIT 
 
 accommodate its members with such services as they 
 may require and should restrict itself to such. And, 
 above all things, all operations involving any risk what- 
 ever will have to be rigorously excluded from the busi- 
 ness programme. For the governing body are not 
 private venturers, like ordinary bankers, but purely 
 trustees. However the general character of the work 
 done will be very similar, as the American Commission 
 has discerned — it will be business — pure business, 
 business in money, reliance for the supply of such ma- 
 terial being based upon deposits and for liquidity upon 
 quick returns. 
 
 Wherever there is a tolerable quantity of money 
 passing through the hands of members, and where bus- 
 iness principles are fairly well understood, there could 
 be no more appropriate organisation than that sug- 
 gested. And such organisation possesses some distinct 
 advantages, which must be apparent to every one. A 
 bank so constituted will be able to extend its district 
 at pleasure, as circumstances may dictate; smallness 
 is by no means essential to its success. It will further- 
 more be at liberty to impose upon its members at will 
 either unlimited or else limited liability, just as they 
 may prefer — liability, if limited, limited down to the 
 very face value of the share taken up, if that be desired. 
 Tlicre will be no occasion to forbid membership in 
 other similar organisations. There will have to be 
 general control, of course; but the bank will be less 
 tied down to minutely meticulous investigations and 
 precautions in its dealings with members — as to the 
 disclosing of the object of each loan, as to having such
 
 A SHARE BASIS 63 
 
 object approved, and having the employment closely 
 watched, with penalties prescribed for non-observance 
 — than a bank based purely upon unlimited liability. 
 For it is already in possession of all that constitutes the 
 member's money liability. There will have to be strict- 
 ness with regard to time limits. Obviously that is quite 
 essential. But otherwise the bank will be little 
 hampered by superprecautionary considerations. It is 
 there to do business, and the best business that it can, 
 for its members. Even so its program need not ex- 
 clude aims of what by co-operators is considered a 
 higher order. The collaboration of so many people 
 with more or less identical interests, linked together 
 by the most potent of bonds, the common interest of the 
 pocket, discussing business matters in common, where 
 mind may be expected to sharpen mind, will be sure 
 to act as a stimulus to intelligence and character. 
 Such collective labour may also be counted upon to 
 open new avenues for common action, likely to be for 
 the common benefit. Italian banks of this type have 
 made a great point of studying public interests by sup- 
 port given, with the help of their small surpluses, to 
 enterprises of common utility — such as education, co- 
 operation on other ground and the like. And the 
 impetus which German banks of this order have im- 
 parted to the use of cheques, clearing, information 
 among themselves respecting doubtful borrowers and 
 widely distributed cashing of bills and cheques — let 
 alone common inspection, all being methods of educa- 
 tion — must count for not a little in their catalogue 
 of merits as public institutions. But in substance the
 
 64, CO-OPERATIVE CREDIT 
 
 aim of these banks will be economic — to produce bet- 
 ter business conditions for their adherents, by keeping 
 a money counter perpetually open to them, at which 
 they have a right, on certain conditions, to demand 
 credit ; by diverting the middleman banker's profit into 
 borrowers' own pockets; and by putting all banking 
 business into a more popular shape, intelligible to the 
 untrained. 
 
 Xow the first point in connection with the organisa- 
 tion of such a society to claim consideration is its pro- 
 posed means of obtaining money. The society is to 
 issue shares, which of course will produce something. 
 But they will not produce nearly enough for the pur- 
 poses of the intended establishment which, moreover — 
 so it will be well to remember — is not to be a Friendly 
 Society or Building and Loan Association, dealing out 
 to borrowers only its members' own money, but a 
 " bank," operating as much as can be with capital bor- 
 rowed from the outside. Its own small share capital 
 is from the outset, in Leon Say's words, designed only 
 as a " capital of guarantee," to stand the racket of loss, 
 — an instrument of guarantee to be offered to lenders as 
 a security in case of any deficiency, which deficiency 
 in this way will fall, not upon the lender, but upon the 
 borrower. The main object of such capital is to at- 
 tract other money. If that is so in capitalist banks, 
 as has been already explained, how much greater need 
 is there of such magnetic action in a bank formed with 
 only little money, because its members are not capital- 
 ists, to enable them to become so. There is no need to 
 apprehend that under such conditions borrowed capi-
 
 A SHARE BASIS 65 
 
 tal will not be forthcoming — supposing the bank to 
 be well managed. The allurements which, on ground 
 then still new and wholly unexplored, the earliest pio- 
 neers of the movement held out to money, have proved 
 not merely sufficient but excessive. They have led to 
 capitalist abuses — such as exorbitant dividends, deal- 
 ing in shares, excessive credits, improper business. 
 " We have succeeded too well," so exclaimed M. Luz- 
 zatti at a Paris congress, only twenty-five years after 
 he had started his first bank in Italy. And he has 
 confessed to me that at the outset he did not limit in- 
 terest on share capital, because it appeared to him very 
 problematical whether there would be any surplus to 
 divide at all. It was the excess command of money 
 brought in, owing to such overliberal treatment, which 
 nearly wrecked the Milan People's Bank in 1873, 
 tempting it upon the path of speculation, and which 
 has quite wrecked some other banks less well nerved 
 to resist the temptation. Some of Schulze's banks have 
 in past years actually run rank riot in the matter of 
 dividend. Money is not so churlishly diffident as had 
 been supposed. It is apt indeed to hold back distrust- 
 fully at first. Co-operative credit is to it what the 
 newly painted gate is to the cow. But show it that its 
 money will be safe, and it will come in readily enough 
 to the tune of an only moderate dividend. It is impor- 
 tant that money should not be over-remunerated, in 
 order that there should not be two interests in the bank 
 — the lender's and the borrower's, with a temptation 
 for the former to exploit the latter. The banks are 
 intended to be borrowers' banks.
 
 66 CO-OPERATIVE CREDIT 
 
 But, though money should not be overpetted — 
 neither loan money nor share money — it is very im- 
 portant that there should be some belonging to the 
 bank and that that "' some " should go on steadily in- 
 creasing. The accumulation of share capital beyond 
 the first stake cannot be enforced. But it should be 
 systematically encouraged. Once members are brought 
 to take an interest in the bank, regarding it, not as a 
 mere casual convenience, but as their own useful estab- 
 lishment, they will also be brought to see th.at their 
 share capital, which will attract at least five dollars of 
 loan money to every one dollar of their own, represents 
 a very valuable and fructifying stake. A bank strong 
 in share capital will be able to command all the more 
 loan capital in proportion. On the other hand a re- 
 serve fund may be forced upward by systematic nurs- 
 ing. And a dollar in the reserve will be as valuable 
 as a money getting asset as a dollar in shares. Twenty 
 or twenty-five per cent, of every annual surplus should 
 accordingly be appropriated to reserve under a stand- 
 ing rule, and no maximum should be fixed at any rate 
 proportioned to the share capital. For it is not the 
 amount of share capital which comes into account in 
 determining the proper figure for the reserve fund, but 
 the volume of outstanding liabilities which there may 
 be to meet. In joint stock companies the share capital 
 is accepted as the determining factor, for convenience 
 sake. And in a joint stock company also, which is a 
 union of capitals, such practice will pass muster, be- 
 cause the share capital there constitutes really the ruling 
 factor. But in a co-operative society the share capital
 
 A SHARE BASIS 67 
 
 is in nine cases out of ten bound to be small only, and 
 what the bank subsists upon is, not its capital, but its 
 business. The reserve fund in consequence becomes 
 of all the greater importance. The best co-operative 
 banks are those which have reserve funds in excess — 
 it may be considerably in excess — of their share capi- 
 tal. The larger the reserve fund, the more independ- 
 ent will the bank be, because that reserve fund is safe 
 in its hands and cannot be withdrawn. 
 
 Eeverting to the original question, that of the obtain- 
 ment of money, there is really nothing to add to what 
 has already been stated on that point in the preceding 
 chapter. The source to be favoured above all others is 
 that of deposits, be they what are called savings de- 
 posits or be they taken in larger sums for temporary 
 investment, in which latter case they will probably be 
 time deposits, with a rate of interest graduated accord- 
 ing to the length of time stipulated for notice. And 
 the deposit counter should be open to all, whether mem- 
 bers or not. What Mr. Burghardt du Bois says in a 
 paper contributed to the Bulletin of the Department of 
 Labor specifically with regard to negro states, com- 
 mending the studied thrift which enables negroes to 
 become small landowners, will probably bear a much 
 wider application : " Larger facilities and encourage- 
 ments for saving in the country districts and small 
 towns of the South could easily strengthen and greatly 
 extend this spirit of thrift." Co-operative banks will 
 come in very handy for such purposes. They gen- 
 erally manage to make themselves appreciated as recep- 
 tacles for savings, because they keep the money col-
 
 68 CO-OPERATIVE CREDIT 
 
 lected in its district and show the public that that 
 money goes to a good and productive purpose that can 
 be understood. A society properly constituted would 
 also be entitled to issue debentures. But it is rather 
 a ticklish thing for a society of this sort to bind itself 
 to long time loans for any large sum. Deposits are 
 under its own control. They may in case of need be 
 repaid or reduced, or even refused. Rediscounts by 
 the bank, which must also be taken into account as a 
 possible source of cash, will only be resorted to when 
 money is really required. The bank itself will be able 
 to regulate that. But it is a risky business to saddle 
 oneself with money on which interest has to be paid 
 for a long time. Debentures are best reserved for 
 mortgage loans. Once more, in this respect a co-op- 
 erative bank is placed in a different position from a 
 capitalist bank — a position which requires the exer- 
 cise of caution. The supply of cash will have to be 
 kept under effective control. 
 
 To return to the question of shares — that suggests 
 the two points: 1. of the value which is to be given to 
 the share and 2. of the liability to be made to attach to 
 it. In respect of liability the public in the United 
 States finds itself in a position favourable, in compari- 
 son with that of people in the United Kingdom, Italy, 
 France and western Europe generally, inasmuch as it is 
 accustomed to liability exceeding the face value of the 
 share. This may prove a very valuable factor to em- 
 ploy, for it improves credit. When co-operative banks 
 were first introduced — in Germany — limited liabil- 
 ity was wholly unknown and unrecognised by the law.
 
 A SHARE BASIS 69 
 
 As a matter of course, accordingly, co-operative banks 
 had to be registered with unlimited liability, and on the 
 gTound of certain advantages which it carries with it 
 such form of liability has grown dear to German — 
 and in a somewhat lesser degTee to Austrian — credit 
 co-operators. On the face of it, it is calculated to com- 
 mand more substantial credit than the share alone with 
 limited liability. The measure in which the unpaid-up 
 liability will be responded to will indeed have to be 
 taken into account as uncertain, and accordingly in its 
 valuation a certain discount will have to be taken off 
 its face value. However, the main object of excess lia- 
 bility is not, to stand for a certain sum which may 
 eventually have to be paid up, but to act as a compel- 
 ling check upon those who ask for credit, to exercise 
 scrupulous care in dealing with the money, in other 
 words, as an additional means of securing the lender. 
 With all this it labours under several disadvantages. 
 
 In the first place it affects the question of dividend 
 on share capital, which under the co-operative princi- 
 ple ought to be narrowly limited, so as not to include 
 gain but merely the market value of the money. Now, 
 under unlimited liability, or in fact under any liability 
 in excess of the actual value of the share, there is a 
 special liability attached to the share, in respect of the 
 risk incurred, which ought in fairness to be paid for, 
 just as insurance is. If in a bank with strictly limited 
 liability the shareholder receives 5 per cent, on his 
 shares, that is just the hire for his money. If in an 
 unlimited liability bank he is allowed 7 or 10 per cent, 
 the excess amount may represent fair value for the risk
 
 70 CO-OPERATIVE CREDIT 
 
 which he incurs. That is, however, a quantity very 
 difficult to determine, and the shareholder who receives 
 the higher rate is likely to find himself saddled with 
 the odium of being a grabber — at the borrower's ex- 
 pense. And such example may very well serve as an 
 encouragement to others, who have not the same excuse, 
 to take more dividend than is in fairness allowable. 
 
 Xext, in a bank based upon shares, the significance 
 of unlimited liability is apt not to be adequately real- 
 ised. Business goes on in it in its routine way, as if 
 there were no question of extra liability. Suddenly 
 there comes a smash. People have just been a little 
 careless, and now they stand aghast at the call unex- 
 pectedly made upon them! Such cases have recently 
 occurred in the Union presided over — until his death 
 — by the late Dr. Haas, in Germany. And the shock 
 produced — also the damage — was great. In a less 
 tragic way the point was very clearly brought under 
 notice in Belgium a considerable time ago. Under 
 Leon d'Andrimont's guidance the hanques populaires 
 there began, in faithful imitation of their German 
 model, with unlimited liability. Xearly from the out- 
 set, however, there has been a tendency towards limited 
 liability, which is in truth more in keeping with the cus- 
 toms of the country. So, a long time ago, it was pro- 
 posed in one of these banks to limit liability to twenty- 
 five times the amount of the share. " Oh, dear no," 
 so members cried out in protest, "that would be far 
 more than we can answer for." In their innocence 
 they took the intended reduction for an expansion; 
 they had in fact failed to realise that thus far they
 
 A SHARE BASIS 71 
 
 had been liable up to the hilt. In a bank based en- 
 tirely, or mainly, upon unlimited liability people un- 
 derstand that they are liable with all that they possess 
 and they act accordingly, that is, with extra caution — 
 which is just what unlimited liability was adopted for. 
 Under it, as a realised engagement, people inquire and 
 check, taking nothing for granted, and so they keep the 
 concern safe. Where the main resource of a bank is 
 a share capital, people are apt to forget what stands 
 behind that. 
 
 There is another point still to enter into considera- 
 tion. Unlimited liability does not require a multiplic- 
 ity of shares. That was Schulze's reason for limiting 
 members to one share only. However he was anxious 
 to make his members accumulate much money. They 
 were to become capitalists. Accordingly he declared 
 himself in favour of large shares, at least $125, but by 
 preference $250, which amount however — since mem- 
 bers might be poor — very considerable time was al- 
 lowed for paying up in. (As a matter of fact there 
 are shares down to $25 ; and Schulze's Union now 
 allows, theoretically, $75 as a minimum.) Schulze's 
 avowed object was to tie down members to a long con- 
 tinued practice of saving. In the Schiueizerische 
 VolhshanTc — which is an excellent business institution, 
 covering all Switzerland by means of its branches 
 formed essentially upon Schulze lines though not ac- 
 tually constituting a member of his Union — until 
 some years ago this principle was carried to the almost 
 ridiculous length of allowing more than eighty years 
 for paying up the 1,000 francs share, at the rate of one
 
 72 CO-OPERATIVE CREDIT 
 
 franc a month. Very rightly have the rules lately 
 been altered. Now, even $250 is not a very large 
 amount to lay by in a desired progress to Capitalism — 
 when the law of most countries allows $1,000 to be 
 amassed in shares — regardless of any further amount 
 accumulated in deposits or loan money. In the United 
 Kingdom, co-operators now propose to carry the figure 
 to $1,500; and the Portuguese Government has in 
 its new Bill actually proposed $5,000. Therefore 
 Schulze's system does not after all quite realise his 
 ambitious aim. 
 
 However the main objection to unlimited liability 
 raised in Western Europe was this, that it commits peo- 
 ple to an obligation, the occurrence and magnitude of 
 which is absolutely not to be foreseen. Schulze him- 
 self with all his declared preference for it, described un- 
 limited liability, accompanied as it is by dangers, as 
 a " two-edged sword." " Our people would never have 
 joined an association which threatened them with such 
 grave danger " — so wrote Signor Ettore Levi, M. 
 Luzzatti's brother in law, late Vice-President of the 
 Bank of Italy, in his excellent " Manuale per le Banche 
 Popolari." And Signor Giustino Eortunato, a fore- 
 most leader in the Italian co-operative credit move- 
 ment, declares that unlimited liability would have 
 made that movement " absolutely impossible." Ac- 
 cordingly, when taking the matter in hand in Italy, 
 M. Luzzatti, although in the main features devotedly 
 following Schulze's example, deliberately limited lia- 
 bility — limited it to the actual value of the share — 
 but on the other hand laid it down that, whatever the
 
 A SHARE BASIS 73 
 
 amount of the share might be, such amount must be 
 paid up within reasonable time, by preference in ten 
 months. That period has in some cases been extended 
 to twenty months and even more. The precise length 
 of time is a matter of detail and does not affect the 
 principle. The essential point is that the bank is 
 within a reasonable time to be placed in possession of 
 its money in ringing coin, converting Schulze's " bird 
 in the bush " into a " bird in the hand " ; and that the 
 member, having paid his money, is freed from all ul- 
 terior liability. 
 
 Xeither did M. Luzzatti desire to see large shares. 
 Shares should in his opinion be proportioned to the cir- 
 cumstances of each case. The Italian law, as it hap- 
 pens, does not allow shares larger than $20. But there 
 are shares down to $1. So every one can cut his coat 
 according to his cloth. And if he desires to invest 
 more, he is free to acquire more shares, up to the value 
 of $1,000. 
 
 Germany adheres in the main to Schulze's tenet. 
 Schulze himself, up to a few years before his death, 
 regarded the matter as one of principle and was only 
 late in life prevailed upon, seemingly with great re- 
 luctance, to allow limited liability to be admissible at 
 all. Austria, which in other respects has trodden 
 faithfully in Schulze's footsteps, is wavering. Else- 
 where — with the exception of some co-operative pur- 
 ists, like the late Arrago Valentini, who consider 
 unlimited liability to be the only " co-operative " form 
 of liability, as really binding members to one another 
 by common interest as in a true brotherhood — unlim-
 
 74 CO-OPERATIVE CREDIT 
 
 ited liability is dreaded in tins connection and, for 
 banks based upon shares, limited liability has become 
 the standing rule. Certainly results in Italy have 
 shown that it is absolutely sufficient for the purpose 
 kept in view; and M. Luzzatti's small shares, quickly 
 paid up, have answered every bit as well as Schulze's 
 large ones with plenty of time given — so much so 
 that, as M. Luzzatti has recently placed upon record, 
 the average figures for accumulation of capital, rela- 
 tion of share capital to loan capital, credit per mem- 
 ber, etc., very nearly correspond under the two systems. 
 
 We have next to think of the employment given to 
 the money collected. The proportion in which share 
 capital is made to attract loan money is very unequal. 
 It depends upon management and the measure in which 
 good management is made known to the public; and it 
 also depends upon favourable or else unfavourable cir- 
 cumstances. There are co-operative banks w^hich, 
 favoured by a trustful disposition of their local public, 
 carry the proportion of loan money as compared with 
 share capital up to the ten and tweutyfold — which on 
 the face of it is excessive and perilous; and there are 
 others content with the double or treble only, which is 
 a very moderate proportion. Loan capital in propor- 
 tion to share capital as five to- one is generally con- 
 sidered safe and permissible. Of course loan capital 
 is cheaper than share capital ; but gainseeking on the 
 ground of such difference is scarcely good " co-opera- 
 tion," seeing that co-operation makes " safety " its first 
 aim. 
 
 There is no reason why a co-operative bank based
 
 A SHARE BASIS 75 
 
 upon shares should not become for its members, just 
 like a capitalist organisation, a veritable bank for all 
 purposes — barring the ambitious enterprises for risky 
 gain entered into by the capitalist institution with the 
 knowledge that there may be loss resulting from them 
 as well as profit. All risky operations, as we have 
 seen, must to the co-operative bank be " taboo." But 
 such bank may institute drawing accounts ; it may cash 
 and discount bills, and perform all similar services, 
 just like an ordinary bank, on its own generally reduced 
 scale. The assumption of such character in itself post- 
 ulates that its main credit operations should be based 
 upon personal security. " Banking is an easy matter 
 enough," so Poulett Thompson, subsequently Lord 
 Sydenham, has laid it down in what has become an 
 accepted golden rule for English bankers, " once a man 
 knows how to distinguish between a mortgage and a 
 bill of exchange." The "bill of exchange" — or, 
 which comes to the same thing, the promissory note, or, 
 for the matter of that, the acceptance — is the instru- 
 ment upon which dealing in credit must mainly rest. 
 For that gives a thoroughly binding, and at the same 
 time readily realisable, effect, which everybody under- 
 stands, which inconveniences no one and upon which, 
 if that should be found desirable, fresh money may be 
 raised — at a small profit to the bank. The endorse- 
 ment will have to be according to requirements. But 
 even under the head of credit on personal security that 
 will not exhaust all that the bank should make it its 
 object to do. For limited liability banks, based upon 
 shares, the secured current account — cash credit or
 
 76 CO-OPERATIVE CREDIT 
 
 overdraft — constitutes a most serviceable and conven- 
 ient method of doing business. In banks based wholly, 
 or mainly, upon unlimited liability, as we shall still 
 see, the case is distinctly difl'erent. In them overdrafts 
 should form altogether the exception. But in a share 
 bank there is no reason — once the means of ascertain- 
 ing the financial value of each member are provided — 
 why this method of doing business should not be freely 
 resorted to for the convenience of all concerned. 
 
 That consideration raises a fresh point. In practice 
 the bank — at any rate once it has attained a certain 
 importance — will find it useful to practise, side by 
 side, two distinct methods of granting credit — one on 
 the ground of specific security given, the other on the 
 ground of the general financial value of the mem- 
 ber. In a small bank such distinction may not be 
 called for. In it all business, being on a reduced scale, 
 will practically come under the same head. In a fair 
 sized bank it will be a great convenience to members, 
 and a distinct stimulus to business, to have a system of 
 " financial rating," which will serve as a standard for 
 overdraft, without further to do. And in a bank of 
 the type at present discussed there w411 be no danger 
 in this. That does not prejudge the question of secur- 
 ity. It will be well in all cases to have the backing of 
 one or two friends or else some other security, if it 
 were only to accustom members to the practice of giv- 
 ing security. But, in addition, it makes the loan more 
 readily realisable and security doubly sure. In Ger- 
 many it is common to ask for an undated promissory 
 note for every overdraft, which note may be subse-
 
 A SHARE BASIS 77 
 
 quently dated by the bank, as occasion may require, 
 and presented in case of anything happening which 
 entitles the bank to withdraw the overdraft. How- 
 ever, at the bank's option — supposing that it considers 
 such practice safe — on the ground of " financial rat- 
 ing," security may also be dispensed with. As a gen- 
 eral rule the " rating " is kept secret — that shows its 
 twofold use. It is not necessarily meant to ensure to 
 the member an enforceable claim. That is done in some 
 banks in Italy, where every member is advised of his 
 own credit limit. Should he require a larger credit, 
 he will be free to arrange with other members for ob- 
 taining their signatures, and with it their title to credit 
 — for which of course those other members will make 
 themselves liable — to add to his own. In this case 
 A., with a credit limit of $2,000, B., with such of 
 $1,500, and C, with such of $3,000, may combine to 
 enable one of the three to claim on the threefold signa- 
 ture a credit of $6,500. Such practice is however not 
 altogether to be commended. It introduces a mechan- 
 ical element where discrimination — in every particu- 
 lar case — is essential. And it is liable to the abuse of 
 members selling their signatures for a consideration. 
 (In connection with this it may be not out of place 
 to mention that, at any rate in the past, co-operative 
 banks in which oversight was lax, have here and there 
 been taken advantage of by the moneylending com- 
 munity for obtaining cheap money under a pretence 
 of co-operation, wherewith to trade individually at a 
 profit. In some countries, for instance in Galicia, such 
 abuse is said to occur even at the present time. It
 
 78 CO-OPERATIVE CREDIT 
 
 need not be pointed out that as much as possible every 
 crevice ought to be carefully closed against anything 
 coming near this.) More generally the "rating" list 
 is kept strictly secret, nobody but the members of the 
 Committee and the managing director being admitted 
 to a sight of it, and it simply serves the managing 
 director as a guide in his conduct of the business, so 
 far as a discretion is allowed him. In fair sized banks 
 the task of appraising members for credit is committed 
 to a distinct committee pledged to secrecy. In small 
 banks the Committee may take charge of it along 
 with its other duties. It needs not to be added that 
 the list wants to be carefully revised from time to 
 time. 
 
 Special provision requires to be made with regard 
 to " financial rating," so far as members of the gov- 
 erning bodies of the bank come into account. To re- 
 fuse to such altogether the right to raise money on 
 credit through the bank which they administer would 
 amount to a measure of hardship unfair in itself and 
 by which the bank would be likely to suffer. For good 
 capable men fit for such service may not be overplenti- 
 ful and the disqualification might deter good men from 
 offering themselves. On the other hand it is but fair 
 to say that in some cases where proper precautions 
 have not been taken, office bearers' access to credit has 
 been, even grossly, abused and the bank affected has 
 been led into difficulties. The course most commonly 
 resorted to to regulate this matter is, to appoint a spe- 
 cial committee charged with nothing but appraising 
 members of the governing bodies — which bodies must
 
 A SHARE BASIS 79 
 
 not of course be represented on such committee. In 
 small banks this method might prove inconvenient and 
 unwieldy. But in them also danger would be likely 
 to be less. There the two governing bodies might be 
 allowed to judge in common, in the absence of the ap- 
 plicant, or else, in very small banks, the case might 
 be referred to a special general meeting. 
 
 All that has thus far been spoken of refers to a gen- 
 eral allowance of credit, on the ground of possessions 
 or of character. Specific loans, to be granted on dis^ 
 tinct security, will have to be judged on their own in- 
 dividual merits. And any excess credit which " rated " 
 members may ask for, will have to be dealt with in 
 the same way. Provided that there is money available, 
 every security should command its own credit. Sup- 
 posing that the man " rated " at $200 offers a good ap- 
 proved bill for $5,000, provided that the money is 
 there, he is entitled to have it discounted. 
 
 That calls for the interpolated remark, that in a 
 co-operative bank — intended, as it is, to make credit 
 accessible to small folk, who would not be able to obtain 
 it by other means — credit should not be allowed to run 
 lumpy. Every claimant should have an equal chance. 
 No monopoly or quasi-monopoly can be permitted. 
 There is no room there for the worship of the golden 
 calf. And in general, whenever there is competition, 
 small loans should be given the preference over large — 
 let alone that by reason of their subdivision they are 
 reckoned safer. But apart from this, the man who 
 wants a large loan is more likely than the applicant 
 for a small one, to obtain what he wants elsewhere.
 
 80 CO-OPERATIVE CREDIT 
 
 Indeed, he may conceivably obtain it on more favour- 
 able terms elsewhere. 
 
 One would not wish to have length of time judged 
 by the same rule. l\o doubt a short term loan is, other 
 things being equal, considered safer than a long term 
 one. But that is not the only consideration to be taken 
 into account. The man with the long term applica- 
 tion is likely to have less prospect of being accom- 
 modated for such long term elsewhere; and the par- 
 ticular type of loan that he asks for may be just of the 
 sort that a co-operative bank is formed to favour. 
 
 The granting of loans raises as a corollary the ques- 
 tion of the security on which they are to be granted. 
 There may, as has been already observed, in some cases 
 be a waiving of security altogether. That is appre- 
 ciated as a valuable convenience to members. But it 
 is apt to prove conducive to lax practice, and in any 
 case it leaves the bank without a pledge to repledge 
 in case of need. It will therefore certainly have to be 
 employed with great circumspection and sparingly. 
 
 There is one class of security, very tempting at the 
 outset, against which organisers of co-operative banks 
 ought to be warned. That is, any shares held in the 
 bank asked to make the advance. So tempting is lend- 
 ing upon such shares felt to be, that in some banks 
 members are allowed to raise money upon them, even 
 in excess of their face value, the care exercised in elect- 
 ing the member being held to stand for additional 
 security. As a matter of course the bank should have 
 a standing lien upon every share that it issues — which 
 share, so it will be well to remember, must not be nego-
 
 A SHARE BASIS 81 
 
 tiable, and transferable only with the consent of the 
 bank previously obtained. But the shares returned to 
 the bank cease to have for it any value for business 
 purposes. They simply indicate that the owner has 
 lost his rights as member of the bank. Shares are of 
 value to the bank while they are in members' hands, 
 in which case the bank holds the money paid for them, 
 possibly with additional liability attaching to them. 
 In its own hands they are mere paper. A bank all 
 shares and no money would be a mere name. So es- 
 sential, indeed, is it rightly held to be that a sufficiency 
 of shares should be placed with members, that well 
 organised banks — like the Schweizerische Volkshank 
 — make it an instruction to the Committee, in the 
 event of such sufficiency being endangered by notices 
 of withdrawal — where withdrawal is allowed — at 
 once to summon a general meeting, to decide whether 
 the bank is to go on or to wind up before the threatened 
 withdrawal has taken place. This is altogether inde- 
 pendent of the usual legal proviso that in the event of 
 the number of members falling below the statutory 
 number the registration of the society shall be cancelled. 
 As regards withdrawableness of shares, no universal 
 rule can be laid down. Under the British Industrial 
 and Provident Societies Act no share is allowed to be 
 withdrawable. Elsewhere withdrawableness is appre- 
 ciated. Whatever be laid down with regard to with- 
 drawal, a share must not in any case be transferable 
 without the bank's consent. To make it even only 
 practically so, has led to serious abuses in some few 
 Italian banks where, dividend being high, co-operative
 
 82 CO-OPERATIVE CREDIT 
 
 bank shares are openly dealt in at a premium in the 
 market. That is as un-" co-operative " as anything 
 can be and leads to what the late Father de Besse, a 
 prominent champion of co-operative credit in his life- 
 time, has termed " attempting to fight usury by prac- 
 tising it." Under the German law, which is generally 
 good and well considered, the pledging of shares of 
 co-operative banks is altogether prohibited. 
 
 As already stated, the form of security favoured 
 should be personal. However it is downright impos- 
 sible, even in a bank shaping its business as much as is 
 practicable on the model of ordinary bank practice, alto- 
 gether to keep out pledge security. Even a trade bill 
 — which is by far the best kind of security that a bank 
 could take — brought for discount is after all a 
 pledge to the bank, although the security pledged in 
 respect of it is purely personal. Mortgages or real 
 security should be as much as possible avoided, as con- 
 stituting very inconvenient pledges. Even such how- 
 ever occur in actual practice. But they should be kept 
 down. However public and private securities, bank- 
 able paper of all sorts, afford very good and convenient 
 security, which ought to be welcomed. In German 
 credit associations, the managers of which aim at mak- 
 ing their institution as much as possible resemble ordi- 
 nary banks — except for maintaining the underlying 
 governing principle — the list of favoured pledges gen- 
 erally ends at this point. In Italy and some other 
 countries, where there are more small people to con- 
 sider, a good deal more pledge credit is permitted and 
 even favoured. And very rightly so. For these banks
 
 A SHARE BASIS 83 
 
 are formed to supply the wants of small people and 
 they must not allow their ambition to become like other 
 banks to stand in the way of their realisation of that 
 aim. Even dock warrant credit, so to call it {ivar- 
 rantage), which is much practised in France and con- 
 sists mainly in the pledging of agricultural chattels 
 and produce, with or without surrender of the custody 
 of the pledge to the lender, is not held to be enough. 
 Such credit, in truth, has some serious drawbacks at- 
 taching to it and is not generally liked. But the banks, 
 so far as they lay themselves out for really " people's " 
 banking, catering for small folk, seeing that they have 
 to provide for all sorts of humble wants — purchase of 
 tools and implements of sewing machines, of provisions, 
 payment of rent, holding over of goods, all the humble 
 wants in fact that poverty-stricken flesh is heir to — of 
 necessity have to vary their requirements as to security 
 in a corresponding way. A tradesman or mechanic 
 having an account against a customer; a contractor 
 executing some job, building or otherwise, for another 
 person; a peasant tending his cocoons or holding over 
 his produce — whatever the want may be, the small 
 man's bank is ready to make the necessary advance upon 
 the security indicated, provided that the maturing as- 
 set is verified as good, or the goods are shown to be 
 there. The contractor will have to bring a certificate 
 from his customer to show that the claim is genuine, 
 to obtain — say — the amounts periodically required 
 for paying for material or wages — always supposing 
 that both claimant and certifying patron are judged to 
 be trustworthy. That is a form of credit which it is
 
 84 CO-OPERATIVE CREDIT 
 
 now sought to develop largely in Italy, in a different 
 way, but also in the service of Co-operation, by means 
 of a bank endowed by the Government with $1,600,000. 
 There are a considerable number of builders' and 
 navvies' societies in Italy, which have constituted them- 
 selves self-employers, taking over contracts — some of 
 them of importance, like the Castle, a water tower and 
 a cemetery wall in Milan, a building of the Mint and 
 gi'eat sewage works in Rome, and some short railways 
 — directly from private persons or public authorities, 
 which they are generally found to execute to full satis- 
 faction. Their weak point is, of course, at any rate 
 initial want of capital. Co-operative banks have as- 
 sisted them to the loan of such, as well as well inten- 
 tioned private capitalists. And they have generally 
 turned such loans to good account. By this means a 
 new, promising prospect has been opened to the Italian 
 working classes and a healthy improvement of their 
 condition has been brought about. The new bank, at 
 Rome, which is authorised to do all classes of banking 
 business, was particularly formed to assist such societies 
 with capital on the security of the work in progress. 
 In France, a bank formed and directed by co-operative 
 working men's productive associations supports such 
 associations in the same wav, with a view to accelerat- 
 ing the emancipation of labour. In Italy a tradesman 
 or woman, do^^^l to a milliner or laundress, having a 
 claim against a customer, may in the same way have 
 such claim discounted by his or her hanca popolare, 
 provided that such claim is first verified. ^lany are 
 the sewing machines which have been provided by co-
 
 A SHARE BASIS 86 
 
 operative banks for poor women to enable them to 
 earn a living. The late Leon d'Andrimont told the 
 story — one among many — of a poor hawker in Liege, 
 who used a barrow hired at 6 cents a week, but, being 
 told of the People's Bank, took up a loan there, which 
 secured him full possession of a barrow of his own in 
 less than a year, he still paying, for that limited time 
 only, the same 6 cents a week. Similar things are, of 
 course, done in the agricultural calling — or, let us 
 rather say, in a wider range, amid rural surroundings. 
 Tliere are substantial wants to be satisfied there, and 
 there are also very moderate ones. The aim of the 
 bank is to satisfy them all. In Germany many a co- 
 operative dairy has been set up with money advanced 
 by the co-operative bank, to be repaid by a levy of so 
 much for every gallon of milk used. In Denmark 
 dairies have been started in the same way ; however, no 
 co-operative bank being present, with the help of loans 
 from private capitalists. And there are very humble 
 banks with small folk for members, taking up very 
 small shares down to $1, doing much business on sim- 
 ilar, although financially reduced, lines. Some of 
 these banks for all their modesty occupy large districts. 
 That makes the service rather more expensive; but it 
 satisfies a want which is not otherwise to be satisfied. 
 And the money lent, say, at 6 per cent., is still much 
 cheaper than what the borrower could obtain from 
 other quarters. As far as is possible, for such small 
 loans — just as for larger — the security taken is per- 
 sonal — two or three other people vouching for the 
 borrower. But there will generally be a lien upon the
 
 86 CO-OPERATIVE CREDIT 
 
 object bought, which constitutes it a pledge — and, let 
 me add, though collateral in form, in fact often re- 
 garded as the main security. Otherwise the favourite 
 record of a loan is a bill or promissory note, which 
 makes both lending and recovery easy and is negotiable 
 for the obtainment of fresh money. 
 
 Business being mainly based upon personal security, 
 it is very important that, if possible, a record should 
 be kept of both borrowers and their sureties — even if 
 the latter be non-members, which is perfectly admis- 
 sible — so as to have a clue to their habit of honouring 
 liabilities. This is done in not a few of the larger 
 banks, sometimes with the aid of a distinct committee, 
 which in Italy goes by the name of " the Committee 
 of Eisks." A record is kept of the punctuality ob- 
 served in the payment of amounts due, of any trouble 
 occasioned, and anything else that may become known 
 that concerns the value of the borrower or his surety 
 as a borrower or endorser, in order that, upon a fresh 
 transaction being proposed, managers may be able to 
 judge from the past, whether they have good men to 
 deal with or questionable. All this tends to security. 
 And it helps not a little to educate the untrained popu- 
 lation to businesslike habits. 
 
 It remains to describe briefly the organisation of 
 co-operative banks of this type. The object aimed at 
 must be to combine capacity for prompt action with 
 careful control and checking. The best organisation 
 under this aspect is that which the law of 1889 — 
 w^hich is generally a good law — has made obligatory 
 in Germany. In its main features it has found a sort
 
 A SHARE BASIS 87 
 
 of replica in the Austrian law, which is likewise gen- 
 erally good. The form of organisation adopted in 
 Italy, and subsequently copied from the Italian pro- 
 totype in some other countries, is in truth only an 
 adaptation of the older German type of organisation, 
 since discarded. The main difference is that in Ger- 
 many and Austria the Managing Committee — cor- 
 responding, as has already been explained, to the 
 " managing director " of a company — and the Council 
 of Supervision — which in the same way corresponds 
 to the " Board of Directors " — are essentially distinct 
 bodies, none of whose members may at the same time 
 form part of the other body; whereas in Italy and the 
 countries following its lead the managing executive 
 is elected from out of the midst of the Council, elected 
 by the members at the General Meeting as the General 
 Committee. Inasmuch as the office of the Executive 
 is to manage, and that of the Council to check, quite 
 evidently it is preferable that the two should be per- 
 fectly distinct, the one being in a manner responsible 
 to the other. Such arrangement also permits freer 
 play to be given to the principle already pleaded for, 
 that the managing body of the bank should be able to 
 deal promptly with any application coming before it. 
 For the Managing Committee will have to be in fre- 
 quent, it may be, daily attendance, whereas the Gen- 
 eral Committee or Council will meet only at compara- 
 tively long intervals. Under such arrangement the 
 managing body may be small, being on the other hand 
 accountable to a much larger body, the very largeness 
 of which is sure to invest it with greater authority.
 
 88 CO-OPERATIVE CREDIT 
 
 Outside Germany, where the older method of organisa- 
 tion has been retained, the numerical position of the 
 two bodies is sometimes reversed, that is to say, there 
 is a comparatively large body to administer and a 
 smaller body, of three ceriseurs, or it may be only one, 
 to check and examine. Very little argument ought to 
 be necessary to demonstrate that, although with good 
 will and anxiety for the best interests of the bank, this 
 arrangement may be made to work well — as in fact 
 it has done in many cases — the other is gTeatly prefer- 
 able. Tor the sense of responsibility, and also the 
 possibility of holding men to it, will be greater in a 
 small body of managers than in a large, and, on the 
 other hand, the authority of a large body exercising 
 control, will carry far greater weight. In Germany, 
 in these share banks, there are three managing direc- 
 tors, skilled men, appointed for as long as they give 
 satisfaction, and salaried according to the time that 
 they are required to give up to their work. In banks 
 of any pretensions that will be their whole time. They 
 are nominated by the elected Council (representing the 
 Board of Directors) and are removable by the same 
 authority. If they are not already members of the 
 bank they are required to become so. But they are 
 appointed on the ground of their banking capacity, 
 whether already members or not. They act as one 
 body, every exercise of their power requiring a signa- 
 ture at all having to be signed by at least two of them. 
 That secures, together with responsibility capable of 
 being brought home for each act, the great requisite of 
 " efficiency." The Council, on the other hand, con-
 
 A SHARE BASIS 89 
 
 trolling them on behalf of the members, will under such 
 circumstances act with the greatest authority possible 
 and will, on the face of it, be committed to and in- 
 terested in, efficient control of just that sort that is 
 here required. That means that it is not only to audit 
 and verify entries — although that will be part of its 
 duties; but, in a bank of any size that part of the 
 control will much the best be left to a skilled accountant 
 acting under the Council — but to judge whether the 
 Managing Committee have properly exercised their 
 discretionary powers, lent to the right persons — or 
 rather, not lent to the wrong ones; lent the proper 
 amounts ; taken adequate security, and kept it up at the 
 point of adequacy; whether borrowers have observed 
 their engagements with regard to employment and re- 
 pa^TQent and so on. To do all this a body endowed 
 with authority is needed. A single censeur, or three 
 censeurs, could not do it with the same weight. The 
 arrangement also emphasises the fact that the controll- 
 ing Council represents the great body of members and 
 acts on their behalf, overhauling things in their inter- 
 est, in order to present to them at the annual meeting 
 a separate Report, distinct from that of the managing 
 body, a kind of precognition, making whatever has 
 happened more readily intelligible to the body of mem- 
 bers, for whom of ©ourse supreme authority in all 
 things must be reserved, but who are necessarily un- 
 familiar with details — and possibly also with ac- 
 counts. Thus you have the best executive body that 
 you can obtain, balanced by the most efficient controll- 
 ing body.
 
 90 CO-OPERATIVE CREDIT 
 
 Under the other arrangement good work has been 
 done. Good men, devoted to their duty, may make 
 almost any system answer. But there is less certainty 
 of its working well, as experience has shown. M. Luz- 
 zatti himself has admitted that, excellent as are his best 
 banks — he places them above the German — the gen- 
 eral standard does not in Italy come up to the German. 
 That is mainly owing to the absence of Union control. 
 But the particular form of organisation employed must 
 likewise count for something in the result. Practically 
 the Italian direttore, a salaried officer, appointed, like 
 the German managers, as a permanent official, with the 
 help of his salaried staff and the unsalaried sindaco — 
 one of three sindaci elected annually, with two deputies 
 to replace them in case of need, out of the General 
 Committee — does the same work as the German three 
 men, and when he is a good man, he does it well. 
 
 The number of three, common in Germany, as con- 
 sidered the most suitable, is, by the way, not prescribed 
 by the law; there might be only two, the one to check 
 the other, or there might be more. However in prac- 
 tice three have been found to answer best. The Italian 
 sindaco represents the Committee. But his work is, 
 for an unsalaried officer, exacting, and the frequent 
 changes, as sindaco replaces sindaco, might lead to a 
 want of continuity, or else make the oversight exer- 
 cised illusory. The sindaco's placet is necessary for 
 everything that is done, and his signature in approval 
 of what has been done of course clears the permanent 
 officer, the direttore. In Belgium banks have con- 
 tented themselves with only one censeur, who is prac-
 
 A SHARE BASIS 91 
 
 tically an auditor. He could not " sit upon " the Com- 
 mittee for trusting Robineau or Grosjean to excess; 
 but he sees carefully enough that figures and cash are 
 correct. 
 
 In all such arrangements for management consider- 
 ation must be taken for local peculiarities, whether the 
 bank in question be large or small, and situated in a 
 rural district or in an industrial centre. The smaller 
 the bank, the simpler may the arrangements adopted 
 be, and unsalaried officers may replace salaried. The 
 larger the bank, and the more varied is its business, the 
 more composite will have to be the administering and 
 checking apparatus. There will have to be more offi- 
 cers, more committees, more special funds and special 
 accounts, and salaried service will become a necessity. 
 A salaried officer of course will be all the more sub- 
 ject to being called to account. The two great points 
 to be kept steadily in view are that there should 
 be an efficient administering body, with power to act 
 promptly, and a superior body exercising effective con- 
 trol. Whether the officers composing the last named 
 body are remunerated or not — if they should be, it 
 will be best to remunerate them according to attend- 
 ances — is a matter not affecting principle, which 
 ought to be decided according to the amount of work 
 required of them and the resources of the bank. Gen- 
 erally speaking, in a large bank, doing an active and 
 varied business, the biblical precept which Schulze 
 habitually quoted will be in place, that " the labourer 
 is worthy of his hire." But this principle should not 
 be pushed too far. In any case it will be questionable
 
 92 CO-OPERATIVE CREDIT 
 
 practice to allow remuneration by commission, "whether 
 on business or on profits. Of the two of course com- 
 mission on business is the worst, as inciting to the cul- 
 tivation of business for business' sake, no matter 
 whether profitable or otherwise, such as has wrecked 
 banks. But commission on profit likewise has its 
 points of danger, as tending to make services costly 
 which the bank was formed to make cheap, in order 
 that there may be more profit, in other words, exploit- 
 ers and exploited. In Italy and Belgium a sufficient 
 supply of thoroughly qualified men to do General Com- 
 mittee work without remuneration and willing to serve 
 has never been wanting. 
 
 One little item of specifically Italian co-operative 
 bank work it may be well just to mention. In Ger- 
 many Schulze would not have very poor folk, dependent 
 upon assistance, in his banks. M. Luzzatti took a more 
 philanthropic view. Philanthropy is in Italy held to 
 form part of Co-operation. And to do justice to that 
 principle M. Luzzatti recommended that part of the 
 profits of co-operative banks should be devoted to works 
 of educative charity. He introduced the " Loan of 
 Honour " — which is very like the lending done by 
 " Kemedial Loan Societies," only that it dives lower 
 down and often dispenses with interest altogether for 
 loans, which appear to be generally honestly repaid. 
 The beneficiaries are very small men, but accepted on 
 the ground of their supposed deservingness, which often 
 enough Friendly Societies are called in to adjudicate 
 upon. The practice is highly praised by its cham- 
 pions, but it has remained small in extent and bank
 
 A SHARE BASIS 93 
 
 managers have explained to me that they keep it up — 
 where they do, which is in very few banks- — more to 
 give M. Luzzatti pleasure than for any other reason. 
 
 Banks of the type here described will, as has been 
 already pointed out, serve both an industrial and an 
 agricultural or rather rural clientele or membership 
 equally well. And the system will do both for small, 
 even very small, and for very large banks, as for in- 
 stance such giant banks as those of Milan and of Leip- 
 zig or Augsburg. The last named is mainly agricultural 
 and by reason of its ramifications serves the best part of 
 a large province. 
 
 Such extension of business calls for some special 
 arrangements which deserve noticing. Membership in 
 such cases is widely scattered and of course, in 
 comparison with urban populations relatively sparse. 
 It is therefore impossible for one administrative staff 
 without assistance to overlook and control the whole. 
 In Italy banks in similar positions form branch 
 establishments for distinct districts which eventually 
 sometimes develop into independent banks, not as 
 a matter of mutinous secession, but for mutual con- 
 venience. In Germany headquarter staffs like to keep 
 government altogether in their own hands. But they 
 establish their hold upon districts by means of local 
 committees or else local agencies, with unrevealed 
 confidential advisers to supplement their services. 
 The latter report to headquarters. So do the agencies 
 and local committees, both of which are authorised 
 to accept monies, be it as deposits or be it as repay- 
 ments, being allowed a trifling percentage upon them.
 
 9* CO-OPERATIVE CREDIT 
 
 as a reward for their trouble. Furthermore they are 
 to receive applications for loans, which they forward 
 to headquarters together with their remarks upon 
 them, as to the substance and trustworthiness of the ap- 
 plicant and the propriety of the application, to their 
 thinking. Where the local representative of a bank is 
 a committee, such remarks are sent up in closed letters, 
 every member's observations by themselves, without be- 
 ing communicated to his colleagues. In any case the 
 head office reserves to itself the decision as to granting 
 the loan or not, on the ground of the information com- 
 municated to it and any other information that it may 
 possess. This system has worked well, and under 
 it signal services have been rendered to agriculture.
 
 CHAPTER IV 
 
 CO-OPEEATIVE BANKS BASED UPON UNLIMITED 
 
 LIABILITY 
 
 Highly useful as the system of co-operative banking 
 discussed in the preceding chapter unquestionably is, 
 it is not every one who is in a position to take advan- 
 tage of it. There are millions, more particularly in 
 country districts, to whom the demand made for a 
 share to be taken up for cash must form a forbidding 
 obstacle, and who have not quick business enough to 
 bring to the bank to keep it steadily employed. Their 
 loans are likely to be few and far between, for long 
 terms, during which the bank's counters will remain 
 unfrequented by them. Also, among the untutored 
 sons of the soil there are many indeed who shrink from 
 signing a bill or a promissory note binding them to 
 repay under penalty on a particular day. They can- 
 not tell at what precise moment their money will be 
 coming in, and the necessity to realise produce for the 
 sake of keeping a fixed term is just what they wish to 
 escape from. And these are precisely the people who 
 need the financial help of co-operative credit most. 
 For them, accordingly, a different system of co-opera- 
 tive credit has had to be devised, which possesses the 
 
 additional merit — for those who appreciate such 
 
 95
 
 06 CO-OPERATIVE CREDIT 
 
 things — of bringing into considerably higher relief 
 the educational, moral and social side of co-operation. 
 And, strange as it may conceivably appear, among the 
 help-requiring masses of economically backward coun- 
 tries, whose acquaintance with business practices is of 
 the crudest, this more primitive system is really more 
 readily understood than the other, and it appeals more 
 commandingly to their conception of helpfulness. So, 
 for instance — not to speak of the broad expanse of 
 rural Germany and Italy, where co-operative banking 
 without shares has worked veritable wonders — it has 
 been in India. The uncultured rayat readily grasps 
 the simple principle of unlimited liability and willingly 
 conforms to it. So probably it would be among many 
 of the small white settlers and among the teeming negro 
 population of the United States. 
 
 Very needlessly has there been for a long time a 
 keenly animated controversy carried on between the 
 advocates severally of the one system and the other, 
 keeping them jealously apart. Happily that period of 
 strife arising from prejudice and want of mutual un- 
 derstanding is over, and the disciples severally of 
 Schulze-Delitzsch and Luzzatti and, on the other hand, 
 of Eaiffeisen, are now, as they should be, on the best 
 footing and working hand in hand, recognising that 
 each of the two systems is the natural and necessary 
 complement of the other. Both systems, so it may be 
 well to point out, make for the same ultimate end, be- 
 yond the mere provision of temporary assistance by 
 credit. That end is the systematic raising of the posi- 
 tion and character of those who practise such credit.
 
 UNLIMITED LIABILITY 97 
 
 In either case the end is to be attained in a distinct 
 way. Schulze's idea of self-help, although based upon 
 the recognition of the necessity of joint effort by gen- 
 uine Co-operation, was marked by strongly individual- 
 istic features. While working together with others, 
 every member was to be made to work also individual- 
 istically for himself. His share in the gains was to 
 go into his own pocket. On coming in he must possess 
 sufficient capital of his own to be able to stand by his 
 own strength. And he must continually add to such 
 little store and raise up out of it a solid fabric of 
 wealth by his own efforts. Whoever was too poor to 
 do this must be left out in the cold; Schulze referred 
 him for preparatory strengthening to charitable organi- 
 sations, which might raise him up to the required level. 
 So here was to be the possession of capital growing out 
 of the possession of a capitalist germ. But the germ 
 must be there, and of sufficient vitality. Eaiffeisen 
 looked at the problem from a different point of view. 
 He saw poverty before him crying out for help. There 
 might, so he thought — and the result has shown that 
 he was right — be plenty of honest men, deserving to 
 be trusted, of more primitive habits in business than 
 Schulze postulated, possessing all moral elements for 
 credit, yet unable to comply with the conditions of bind- 
 ing themselves to the taking up of a share and a course 
 of action savouring of capitalism. This must be so 
 particularly among the humble masses of dwellers in 
 the country, among whom ringing cash is scarce, 
 though there is a steady production of articles of value, 
 and to whom the ways of the countinghouse are un-
 
 98 CO-OPERATIVE CREDIT 
 
 known. These people needed help. Their condition 
 was likely to be backward, not in knowledge of business 
 habits only. Living in sparsely populated districts 
 among a primitive population, Eaiffeisen found their 
 needs being brought appealingly under his notice. He 
 discerned the difference in the circumstances on one 
 side and the other. He saw that the lonely country 
 side engenders different habits, being both helpful and 
 hindering, to those which active town life generated. 
 The untrained countryman needs a very different kind 
 of help from that which Schulze's system had to offer 
 him. And why should not his better endowed, better 
 educated, more highly cultivated neighbour give it him 
 from a feeling, a sense of duty, which the Bible incul- 
 cates — so long as he gives it in the right way, without 
 undermining the sense of self-reliance of him who is to 
 benefit by it? One of Raiffeisen's chiefest merits, if 
 not the chiefest, in my opinion is this, that he has, with 
 complete simplicity, but yet with creditable ingenuity^ 
 devised a means by which the better-to-do may help — 
 financially help — the poorer without demoralising 
 him, nay, while actually strengthening his fibre and 
 raising him to a higher status, by means of a quickened 
 sense of responsibility and recognition of duty. 
 
 Raiffeisen's system, which is to form the subject of 
 the present chapter, has by its admirable results — 
 specifically in country districts — endeared itself gen- 
 erally to all who have come to understand it and in 
 whom humane instincts are vivid. Its popularity as 
 a rural institution has in some quarters attached to it 
 the not altogether merited reputation of being the only
 
 UNLIMITED LIABILITY 99 
 
 system to be of service to agriculture. That is a mis- 
 take. There are whole sections of agriculture in which 
 it would be out of place. There are not sufficient 
 statistics to admit of testing the point, conclusively; 
 but it is quite possible that in respect of volume of 
 money given the Schulze-Delitzsch and Luzzatti sys- 
 tems have done more for agriculture. They have 
 raised larger sums. So far as Italy comes into account 
 that is certainly so. However the amount of money 
 produced is after all not the only criterium by which a 
 system deserves to be judged. Eaiffeisen's little banks, 
 although highly beneficial to agriculture, never set up 
 the claim of being specifically " agTicultural " banks. 
 That is an entire innovation upon his scheme, which 
 adapters, anxious to achieve success by enlisting egotis- 
 tical class interests — which has made them political 
 — have grafted upon what in its original form was 
 simply philanthropic, but at the same time also soundly 
 businesslike. Eaiffeisen's own societies style them- 
 selves unpretentiously " rural loanbanks." They are 
 designed for rural populations — but for populations of 
 this sort in their full comprehensiveness, regardless of 
 callings. Amid such populations it was Eaiffeisen's 
 aim to accomplish what ]\r. Luzzatti has termed " the 
 capitalisation of honesty." There was no demand 
 made for capital. But there must be honesty — such 
 as neighbours could vouch for. Just as the distributive 
 co-operators — beginning with the poor weavers of 
 Toad Lane, who possessed nothing — systematically 
 build up capital out of custom, so he would turn the 
 rural have-naught who was upright in his dealings,
 
 100 CO-OPERATIVE CREDIT 
 
 slowly but surely into a capitalist, by means of the use 
 that he was to be enabled to make of the money which 
 Eaiffeisen would help him to borrow for the business 
 which in any case he would have to transact. The 
 Eaiffeisen system is distinctly a scheme for small men 
 in country districts, and its main attraction and most 
 conspicuous merits are to be found in the educational, 
 moral, social, as well as economic good which it ac- 
 complishes among those whom it takes in hand. The 
 small man — and the better-to-do, who is anxious to 
 help him without demoralising him — find their proper 
 places in such society. The better-to-do farmer, who 
 can readily take up shares and who is thinking only 
 of providing himself with more working capital, will 
 do better to go to the other system. 
 
 There is no need to tell over again the story how 
 Eaiffeisen, a plain man of the people, educated in a 
 " people's " school, serving as a non-commissioned offi- 
 cer in the Prussian artillery (though actually about to 
 qualify for a commission), owing to a defect in his 
 eyesight was diverted from his military career and be- 
 came, advancing step by step, a public benefactor to 
 people in all the world. Schulze, as " patrimonial 
 judge," learnt through his judicial practice of the needs 
 of the humble trading class and was so led to devise a 
 scheme of credit which would benefit primarily these 
 people and eventually others. Eaiffeisen, appointed a 
 rural " maire " — in the French sense of the word ; for 
 his country Ehineland was still under French law and 
 French municipal organisation — likewise through his 
 calling and office learnt of the far more grinding dis-
 
 UNLIMITED LIABILITY 101 
 
 tress endured by the humble population of the rural 
 districts, whose everything, such as it was, was for the 
 most part mortgaged to " the Jews " and who had 
 become very peons to their bloodsucking masters. He 
 likewise set his heart upon bringing these people help 
 — help, not only in money — for money would at best 
 yield them only temporary relief — but also in the 
 more valuable and enduring shape of culture and form- 
 ation of character and of a capability of acting to- 
 gether generally. He began in the approved way 
 with a philanthropic organisation. He found that that 
 would not go nearly far enough. It might slightly re- 
 duce economic need; but it did not form character; it 
 cut off a poisonous shoot, but left the venom-soaked 
 stock to produce all the more lustily. He tried char- 
 ity — the dispensing of gift money and " remedial 
 loans." That, too, proved a failure. So he found him- 
 self driven to Co-operation, which enlists the efforts of 
 beneficiaries themselves and so produces both a better 
 and a more enduring result. He began with a co-oper- 
 ative bakery — because bread at a reasonable price was 
 most urgently needed. That brought instant relief, 
 but only at one point. He then attacked usury in one 
 of its pet strongholds, the cattle trade, which bristled 
 with vile abuses. Once more he scored — moderately. 
 These experiments taught him that he must take wider 
 ground, that he must teach the people whom he desired 
 to help to co-operate for common good in all depart- 
 ments of economic life. And the centre of such life 
 he of course naturally discovered to be the disposal of 
 money. " It is money which makes the mare to go."
 
 102 CO-OPERATIVE CREDIT 
 
 And that is borne out by the teaching of observation 
 elsewhere. The Spanish positos, the Italian monti 
 frumentari, which began as gTain preserving and dis- 
 tributing depositories, such as the patriarch Joseph 
 might have established, have to a great extent been con- 
 verted into money foundations, and are being so con- 
 verted more and more. And in India the co-operative 
 bank, dealing in money, crowds out the humanely de- 
 signed " dharma gola " or granary. Money has become 
 the soul of business. Eaiffeisen's societies accordingly 
 are not mere credit societies. They are co-operative 
 societies in a multiform aspect. But the pillar of the 
 whole necessarily is credit. 
 
 What has just been said about Kaiffeisen and his aim 
 will give a clue to the main features of his system. His 
 banks are distinctively meant for the comparatively 
 humble — smallish farmers, do\vn to the veritable 
 have-nots, it may be the beggar on the dunghill, if he is 
 only honest. That being so, there was no room for 
 asking for anything from the incoming member except 
 character, to be vouched for by his neighbours, who 
 would join with him in the common credit venture, 
 staking their own. liability for themselves and him. 
 Raiffeisen would have neither shares nor entrance fees 
 — absolutely no tax in money. That meant of course 
 that — according to Leon Say's well known dictum — 
 there must be unlimited liabilitv, and also, that what- 
 ever was foregone in respect of money must be all the 
 more carefully made up for in discrimination regard- 
 ing character. It is absolute nonsense to pretend that 
 a RaifFeisen bank can live upon limited liability; and
 
 UNLIMITED LIABILITY 103 
 
 no less a mistake is it to press people to come in, in or- 
 der that there may be many. Lenders and depositors 
 want to have the full phalanx of members to answer 
 them for their money with all that they are worth; 
 and those who so pledge themselves want to be sure 
 that those with whom they join together are to be 
 trusted. 
 
 It is sometimes contended that Raiffeisen banking 
 depends upon the possession of land as a backbone to 
 members' liability and that without such possession 
 Eaiffeisen credit is not possible. That is a great mis- 
 take. The wide extension which the system has found 
 among mere tenantry in Italy in itself gives that heresy 
 the lie. It is quite true that in Germany among ad- 
 herents of the Eaiffeisen system peasant proprietorship 
 predominates. That is because in Germany ownership 
 is the rule. But the liability engaged is in every 
 case personal. It sJiould not take the shape of a mort- 
 gage on land, save in exceptional cases. It is the lia- 
 bility which pledges all that the member has, no matter 
 whether as owner or as tenant — which compels the 
 member to give the one substitute for money that he can 
 give, and which constitutes a very much better security 
 than mortgaged land, to wit, the straining of every 
 nerve, by caution, by discrimination, by vigilance, by 
 warning, to preserve his society and himself from loss. 
 That is the corner stone upon which the fabric rests. 
 There must be unlimited liability. 
 
 Now let us see how that works. Ko new man can 
 come into the bank except by the vote of the members 
 already in. Make them responsible only for a fixed
 
 104. CO-OPERATIVE CREDIT 
 
 sum — even if it be fairly large — and they are not 
 likely to be overcritical. " We stand to lose thus much, 
 not more; after all, A. is a man whom one would not 
 like to offend; so we will trust him." Make the lia- 
 bility unlimited — which means, that every member in 
 the bank will become liable in respect of every case of 
 default made by any other member — and they scruti- 
 nise their man keenly, in order not to be brought into 
 loss. 
 
 It may be well to point out what a remarkably stim- 
 ulating effect that has had in Eaiffeisen banks, not only 
 under a financial, but no less so under a morally and 
 socially educating aspect. Membership has not gone 
 long a-begging, once it was discovered that by it money 
 was to be got. Jones saw how well Brown was doing 
 with bank money and he did not want to be left out in 
 the cold. However, Brown's comrades judged Jones' 
 claim to become a member to be open to question. 
 Maybe he was a spendthrift, maybe he was an idler, or 
 a drunkard, or suspected of being something worse. 
 Being potentially committed to liability for him, they 
 did not stand on etiquette : " Ko, my friend, we will 
 not have you at present." However, there was good to 
 be got out of becoming a member. Jones was not asked 
 to " serve God for nought." So he took to serving Him 
 for what he needed and was anxious to get. He aban- 
 doned his bad habits, became a reformed character — 
 and was elected. Being liable to expulsion in case of 
 relapse, he remains on his good behaviour. There have 
 been numbers of such cases. Even down to the very 
 humble requirement of being able to finger a pen, men
 
 UNLIMITED LIABILITY 105 
 
 have been driven by the Eaiffeisen banks to learn writ- 
 ing in their old age. Illiteracy is greatly rife in Italy. 
 There are districts v^ith abont 80 per cent, of illiterates. 
 But the cassa rurale required that there should be no 
 member who could not at the very least sign his own 
 name. And so old men have taken to learning to write 
 from their grandchildren. You may still tell what 
 novices they are in writing by the sprawling, straggling 
 characters of their signatures. It is a matter of com- 
 mon observation that wherever there are Raiffeisen 
 banks, not only is there less pauperism and poverty 
 generally — there is a saying current in Germany (in 
 the shape of a couplet) that whoever sets up Eaiffeisen 
 banks thereby pulls dovm poorhouses ; ^ but there is also 
 a higher level of morality. Even the Serbian peasant 
 forsakes his slivovitz and becomes sober. In Germany 
 crime and larceny have decreased under their influ- 
 ence, as pastors and local judges have testified. Pota- 
 toes have become safe in their graves and in the fields, 
 and manure has become so in its heaps. Formerly 
 both used to be freely stolen. And education has 
 progressed. 
 
 But let us advance one step further. Brown has 
 rejected Jones as a member. But he has still his own 
 ofiicers to elect. Once more unlimited liability makes 
 him severely critical. " The man in that position may 
 cause me loss ; let me make sure that he is a good one." 
 Unlimited liability banishes respect of persons; it 
 recognises only merit. 
 
 1 " Wer Raiffeisen-vereine baut 
 
 Reisst Armenhiiuser nieder."
 
 106 CO-OPERATIVE CREDIT 
 
 And, the Committeemen and Councilmen being 
 elected, our unlimited liability man is not disposed to 
 leave matters further alone. Publicity is the rule in 
 the bank. Every member has a right to know who has 
 borrowed, how much and what for. So Brown lays 
 himself out for knowing, and he follows his knowledge 
 up. He does not want to be made to pay. 
 
 So again it is when the balance sheet comes to be 
 laid before the General Meeting and explained by the 
 Council. Things are inquired into minutely that 
 would under other circumstances be allowed to pass 
 without comment. Unlimited liability sharpens intel- 
 ligence as nothing else will and breaks down barriers 
 of caste and class and office. 
 
 In this way unlimited liability supplies automatically 
 that " elbow grease," that personal trouble and inquiry 
 which in such an institution as this is to replace capi- 
 tal. " We make sure of being able to repay — because 
 we take care to see that everything is done to make 
 repayment to ourselves certain." " What have all 
 these men among them got to produce supposing that 
 they are sold up ? " So asked of me the late Duke of 
 Devonshire when, twenty-three years ago, I invited him 
 to become President of the Agricultural Banks Associa- 
 tion. Well, for the matter of that, they have probably 
 got quite enough to answer for liabilities. In France 
 ]\r. Louis Durand, reckoning up the possessions of mem- 
 bers in his rural banks, found that they possessed a 
 good deal more than they owed. But selling up is a 
 point that they will never allow the matter to ripen to. 
 Selling up would mean dire distress to themselves. So
 
 UNLIMITED LIABILITY 107 
 
 they take care to prevent it. On the other hand, the 
 man for whom they make themselves answerable would 
 find himself in a very undesirable position were he to 
 betray his classmates, who exercise judgment in their 
 own way and have good, retentive memories. So he is 
 careful not to play them false. In truth it is almost 
 marvellous what a compelling force such class feeling 
 exercises upon borrowers. I have told a story of a 
 working man in a rather remote suburb of London, who 
 never thought of repaying the vicar, from whom he 
 had borrov/ed £2. " Oh, you're the vicar ; you don't 
 want it." But that same man repaid his local " self- 
 help society " every penny to the day. In Italy, where 
 poverty of the crassest sort is rife, poor folk emigrat- 
 ing have returned their borrowed money scrupulously 
 even from their distant transatlantic new homes, simply 
 from a feeling of honesty to their " pals." 
 
 The upshot of all this is that if you want to have 
 a bank on Eaiffeisen lines you may do without shares 
 and without entrance fees — although if your mem- 
 bers can afford shares, such are a useful support to the 
 bank, and entrance fees, as has been already shown, 
 have merits of their own — but you cannot do without 
 unlimited liability. Attempts have been made to do 
 without it — mainly because there were kindly dis- 
 posed persons who were willing to support the bank, 
 without intending to borrow from it, but who would not 
 " go the whole hog " in making themselves liable. 
 From such well-intentioned men, provided that they are 
 in earnest, unlimited liability is required at least as 
 much as from the humbler prospective beneficiaries.
 
 108 CO-OPERATIVE CREDIT 
 
 just because you do not want tbeir money. Were they 
 to pay, that would demoralise the whole institution. 
 It was Eaiffeisen's particular merit that he devised a 
 means by which wealthy men may help the poor with- 
 out demoralising them. You want their title to credit, 
 but you also want their counsel, their guidance and 
 personal participation in the work, because they have 
 the command of business experience, knowledge of the 
 world and common sense — qualities most valuable to 
 you — in a higher degree than their humbler neigh- 
 bours. This is in truth what you want of them most. 
 But they could not be relied upon for giving it to 
 the extent that you want unless they are compelled to 
 this by unlimited liability. A limited financial stake 
 they are prepared to sacrifice. If they desire no more 
 than to help with money, let them deposit such, and 
 they wall be free from all care and run only a very 
 limited risk. The attempt to combine Eaiffeisen 
 credit with limited liability — which Eaiffeisen him- 
 self deprecated and pronounced practically impossible, 
 as do his followers to the present day — has in all cases 
 ended in patronage, which is the exact opposite of co- 
 operation. The late Count Alexander Karolyi wanted 
 it in Hungary. He created a central bank — and his 
 local banks have become little more than distributing 
 stations. Some large landowners in Prussian Saxony 
 and in Pomerania wanted it — and they have got it. 
 But the late Dr. Haas himself, the president of their 
 Union, judged it misplaced, as he has himself written 
 to me, and merely tolerated it for the sake of keeping 
 the societies concerned in his Union. The practice
 
 UNLIMITED LIABILITY 109 
 
 could not possibly be reproduced on the same lines in 
 any other country. For Prussia has its income tax 
 down to $225 per annum. Every man is appraised 
 for tax down to that point — and below it. For there 
 is an imaginary scale of estimated incomes downwards 
 from that point, in order that not even the smallest 
 fish may slip through the taxgatherer's net. And on 
 such appraisement is the liability assessed. Where 
 else is there an appraisement of such small men that 
 could be relied upon ? You cannot have this kind of 
 co-operative bank without unlimited liability, because 
 it would lack the requisite security and it would lack, 
 which is even more important, the requisite stimulus 
 to watching and checking and taking trouble. 
 
 And it is unlimited liability which determines the 
 leading features of this humble institution — which 
 people must not picture to themselves as of importance 
 by reason of its magnitude. " It is its humbleness 
 which constitutes its beauty " — dont lliumilite est la 
 heaute — says M. Eugene Eostand. Its importance 
 lies in its services, and its results become great by the 
 multitude of organisations with which it covers the face 
 of a country. It is " detail business," says the German 
 Imperial Chancellor, Ilerr von Bethmann-IIollweg ; 
 and that in his opinion makes it so valuable. 
 
 The bank being based upon unlimited liability and 
 mutual checking, it follows as a matter of course that, 
 in the first place, members must in all cases be limited 
 to membership in one such bank only, or their liability 
 for all that they possess would become illusory or at 
 any rate of only doubtful value; and, in the second.
 
 110 CO-OPERATIVE CREDIT 
 
 that its working district must be small, in order that 
 members may be bound together by the link of prox- 
 imity, which alone ensures a possibility of their know- 
 ing and watching one another. In this respect it is 
 best not to cherish any illusions. Such a bank as this 
 cannot work in a sparse population or where people are 
 strangers to one another. I have found a telling in- 
 stance of this in eastern Prussia. The institution is 
 much favoured by the Prussian as by other Govern- 
 ments, on the ground of its excellent results. How- 
 ever in the newly formed settlements in the Polish 
 provinces of Prussia — which in themselves are highly 
 interesting, and would be even more so if they were not 
 formed with a political object, namely, to stamp out 
 Polonism and replace it by Germanism — the Presi- 
 dent of the Settling Commission some twenty years 
 ago — he is dead now — complained to me that with 
 all good will in the world he could not push them as he 
 would wish to do, because the settlers, newly gathered 
 together from all parts of Germany, and from Switzer- 
 land to boot, were still without sufficient touch and 
 power of mutual control. And amid a sparse popula- 
 tion the whole thing becomes impossible for lack of the 
 same essential postulates. 
 
 There is another reason which under this aspect 
 makes large districts undesirable. Eaiffeisenism was, 
 as already observed, not simply to provide credit attain- 
 able by the poor. It was also to create a kind of 
 brotherhood among members, such as would link to- 
 gether the various elements of the whole parish, make 
 people buy in common, sell in common and pursue in
 
 UNLIMITED LIABILITY 111 
 
 common the same economic and ideal aims. For that 
 reason, once more, the working district must be small. 
 However, there is more even than mere limitation of 
 district and non-limitation of liability that is wanted. 
 Members joining have their vigilance and power of dis- 
 crimination sharpened by unlimited liability, but they 
 must be given a fair field for the exercise of these 
 functions. In other words, the organisation of the so- 
 ciety must be thoroughly democratic. Wealthy men 
 and men experienced in affairs are desired in it, be- 
 cause they may be exceedingly useful. Their presence 
 is not indeed indispensable. There are banks without 
 them. But it is by far preferable that there should be 
 such. Eaiffeisen distinctly urged this and recom- 
 mended for the safeguarding of such well-wishers' in- 
 terests, that they should as a standing rule be allowed 
 adequate representation on the governing bodies. It 
 is to the interest of the bank itself that thev should have 
 such. And with it, so it deserves to be pointed out, 
 they are perfectly safe. For their assent will be 
 needed for any employment of money. It is just con- 
 ceivable that they might raise objections but should 
 nevertheless be overruled. That is not indeed very 
 likely. But suppose that it happens. Our well-to-do 
 men may in that case simply resign their membership. 
 Under newly revised rules in Germany — where the 
 institution has been long at work, where people are 
 thoroughly well broken in to its ways, and where, in 
 the last place, arrangements for control have been car- 
 ried to a high state of perfection — rather considerable 
 notice is now required for withdrawing. But on new
 
 112 CO-OPERATIVE CREDIT 
 
 ground nobody would think of tying members down to 
 such condition. In early stages a member must be 
 left free to go out whenever he pleases, and from that 
 moment his liability for transactions not yet completed 
 ipso facto ceases. The bank would then by an exer- 
 cise of unreasonable self-will lose a member or mem- 
 bers whom in its own interest we may be sure that it 
 will be anxious to retain, if possible. Therefore over- 
 ruling is not likely to be lightly or capriciously re- 
 sorted to. 
 
 However, apart from such consideration, which is in 
 the interest of the bank itself, our wealthy man can 
 have no privileges allowed to him. As already ob- 
 served, if he does not desire personally to put his hand 
 to the plough, let him betoken his good will by deposit- 
 ing. Once in, he must in fairness take his place, as an 
 equal, by the side of his comrades. Every man stakes 
 his own liability, which to himself is worth quite as 
 much as his neighbour's liability is to him, whatever 
 may be the difference in amount of the two. Accord- 
 ingly everybody must be allowed an equal say. 
 
 Organisation is in these little banks in its main 
 features framed on the same lines as in the banks based 
 on shares. Things are of course in general smaller 
 and resemble more dealings among members of the 
 same group of families. It is a common practice to 
 elect a chairman at the General Meeting, who is of 
 course not removable, as other members of the Man- 
 aging Committee are in extreme cases, by the Coun- 
 cil of Supervision. This is, however, not indispensable. 
 It is liable to be abused for the establishment of one
 
 UNLIMITED LIABILITY 113 
 
 man rule, which danger should be guarded against by 
 proper selection and by careful checking by the Coun- 
 cil of Supervision. But in practice it works well. It 
 was, in truth, the original form of organisation 
 adopted. The chairman under such conditions plays a 
 more prominent part than he otherwise would do. 
 Eaiffeisen laid it do\\Ti that once a good chairman had 
 been secured and a man had been found to undertake 
 the secretarial duties, a new bank might forthwith be- 
 gin business. As to the most convenient size of the 
 Committee, Eeiffeisen as a standing rule preferred the 
 number of five, and nine for the Council of Supervi- 
 sion. However, there is no reason why in a small 
 bank a Committee of three should not suffice. It is 
 not always easy to man these governing bodies to the 
 full number with efficient and well qualified men. 
 And efficiency and good qualification are necessary be- 
 cause — there being no shares, or only very small ones 
 — very careful inquiry before a loan is granted be- 
 comes doubly essential, and the tendering of the em- 
 ployment of the loan as security for itself becomes 
 accentuated. Something like the numerical propor- 
 tion recommended by Raifi'eisen should certainly be 
 retained. The Council should in these banks consist 
 of a larger number of members than the Committee. 
 
 Non-remuneration of officers is in these banks a 
 standing rule never set aside. The reasons already 
 urged as making remuneration undesirable become in 
 the present application doubly cogent. The actual 
 labour and expenditure of time are sure to be very 
 much less exacting than in share banks. And it was a
 
 114, CO-OPERATIVE CREDIT 
 
 principle with Eaiffeisen that a man might well be 
 expected to give the labour required, by which he him- 
 self will profit, for the benefit of his neighbours, with- 
 out pecuniary reward. His aim was to keep out every 
 consideration of pelf, all possible pickings. There 
 must be no shares, in order that there might be no 
 dividend, to set the interest of the provider of money 
 possibly in opposition to that of the applicant for 
 money, and convert the " borrowers' bank " into a 
 usurer's trap. There must be no remuneration, in 
 order that things might be kept pure and done 
 cheaply; and that there might be no inducement for 
 any office holder unduly to favour any applicant who 
 might threaten to use his vote in the re-election of the 
 Committeeman as a revenge for refusal. The salaried 
 office might be worth something to its holder. And 
 there must be no divisible reserve fund, in order that 
 there might be no inducement to wind up the bank for 
 the sake of the spoils — as has actually happened in 
 co-operative societies with large surpluses, Eaiffeisen's 
 own first " loan bank," formed without such safeguard, 
 among the number. In the event of the bank being 
 wound up, it is laid down by general rule, which is 
 regarded as sacred, that the reserve fund must remain 
 intact, to be employed for the endowment of a new 
 bank to be formed some time or otlier on the same lines 
 and in the same locality, or, failing that, to be laid 
 out in some public work benefiting the district. As 
 regards pa^Tuent of officers, there is one man only who 
 may be paid — but that should be at a moderate rate ; 
 and indeed the little bank can never afford more.
 
 UNLIMITED LIABILITY 115 
 
 That man is the secretary or cashier, or accountant — 
 
 in Germany they call him rechnei or whatever else 
 
 you may choose to call him, that is, the man who 
 as a subordinate officer carries out the behests of the 
 Committee, keeps the books, pays out the cash and re- 
 ceives it in its turn. But this man must not on any 
 account be a member of either Committee or Council, 
 or have any say in the disposal of money. Other of- 
 ficers may be refunded out-of-pocket expenses, which 
 as a matter of fact rarely occur. It is, by the way, 
 a mistake to multiply offices, as has been proposed in 
 England, and as is suggested in some of the new Acts 
 passed in the United States, The bank is a simple 
 institution and wants to be simply organised and man- 
 aged. 
 
 The functions severally of Managing Committee and 
 Council or Supervision are in substance the same as in 
 the banks already spoken of. However, in either case 
 inquiry and control will have to be more searching, 
 because that in fact constitutes to a great extent the 
 security offered. To bind the borrower all the more 
 compellingly to the employment named by him and 
 approved, it is laid down that in the event of his mis- 
 employing the loan the latter may be called in at short 
 notice — in Germany within four weeks ; in Italy, 
 where the loan is granted each time for three months 
 only, with a promissory note for that term as record — 
 although it is understood that there are to be renewals 
 — on the maturity of the current promissory note. I 
 have not heard that this provision has been put to 
 practical use — which shows all the more clearly how
 
 116 CO-OPERATIVE CREDIT 
 
 effective it has proved as " a rod upon the mantel- 
 piece," a menace to evildoers and a safeguard for 
 proper employment. 
 
 For its supply of funds the Eaiffeisen bank relies, 
 first and mainly, like the Schulze-Delitzsch and Luz- 
 zatti banks, upon deposits and other loan capital — 
 indeed more so than they, because it has no shares. 
 Shares are indeed no contraband in Raiffeisen banks. 
 But they are not necessary. And in any case principle 
 requires that they should be small. The German and 
 Austrian legislatures have forced shares upon them, and 
 the French is now endeavouring to do so, for reasons of 
 its own, by threatening to withhold State advances from 
 non-share-issuing banks — which of course leaves such 
 societies as M. Durand's genuinely Raiffeisen banks 
 free to pursue their own path without State support 
 but is resented as casting a slur upon a useful institu- 
 tion. In Italy a fussy district judge has ruled that 
 there must be shares, to comply with the law,. And, 
 not to incur the trouble and cost of an appeal to a higher 
 tribunal, that particular bank (at Crema) has issued 
 shares — of two cents. In Germany the banks have 
 answered Prince Bismarck's studied compulsion by lim- 
 iting shares to 25 cents — of which shares every mem- 
 ber is permitted to take up only one — and signing 
 away all possible dividend (limited as it is) for sub- 
 scription to its Union paper. In Austria shares are 
 commonly of about 50 cents, with the same proviso. 
 In the absence of share capital the little bank will have 
 to do all that it can to attract deposits — from any one 
 in the district, or even out of it, be he a member or no.
 
 UNLIMITED LIABILITY 117 
 
 That, as it happens, is not a difficult process. For 
 people in the district soon come to love the little bank 
 which brings their district benefit, and the good effects 
 of which they may themselves observe any day in the 
 district. People like to have their savings adminis- 
 tered by men of their own choice and under their own 
 eyes. However collection has in any case to be pro- 
 ceeded with systematically. It is very common to have 
 collectors going the round from house to house, with 
 savings books or tokens, and gathering up small sums 
 which in course of time come to total up to something 
 substantial. However for its first funds, until a Cen- 
 tral Bank is formed capable of appraising the security 
 created and lending upon it, the bank is likely to have 
 to look to wellwishers, in the shape of specific loans or 
 fixed deposits, to provide working capital. 
 
 Both in the matter of collecting funds and employing 
 them the essential difference between the Schulze- 
 Delitzsch principle and the Eaiffeisen, about which 
 there has been for so long time an altogether gratuitous 
 hurly-burly fight, becomes very plainly apparent. 
 Schulze-Delitzsch — and like him M. Luzzatti — rely 
 upon quick and active business, in which money passes 
 freely across the bank's counter, coming and going. 
 The money which their banks receive is for the most 
 part withdrawable at very short notice or without any, 
 and cannot accordingly be lent out for very long terms. 
 Raiffeisen pledges the collective unlimited liability of 
 all his members, which goes on and remains steady. 
 He does not want to have more cash on his hands than 
 he can employ, because that would mean loss of interest.
 
 118 CO-OPERATIVE CREDIT 
 
 But he wants a fund which he can at any time pledge 
 as occasion may require — just as a State pledges its 
 credit by issuing Treasury Bills or contracting new 
 loans. Members' collective liability in fact answers 
 the purpose of a Consolidated Fund. The stock for 
 credit is always there. Members of the bank are aware 
 that they pledge it and exercise caution accordingly. 
 And lenders know how it comes to be pledged. Even 
 unexpected withdrawals of deposits could not ruin our 
 bank, once it has made appropriate arrangements with 
 other banks — such as will still be spoken of. Such 
 arrangements provide it with a credit reserve upon 
 which it may draw when its own funds give out, be- 
 cause its security is there understood. 
 
 This difference in policy accounts for a rather 
 marked difference also in the practice of loaning out 
 money, which has long formed a stumbling block to the 
 strictly businesslike followers of Schulze-Delitzsch. 
 Eaiffeisen has a different public to deal with than they, 
 who borrow in many cases for a different class of ob- 
 jects. He must keep the possibility in view of having 
 to deal with very poor people, without capital, such as 
 Schulze-Delitzsch would not have in his banks. For 
 such the loan is to yield economic benefit, create some 
 new value. If it is to do this, it must necessarily be 
 sufficient in amount for effecting its intended object, 
 and it must be lent for long enough to have time to do 
 so. If the man who wishes to carry out a $100 im- 
 provement or outlay, is lent only $90, or if, when the 
 return can come only in two years, he is allowed the 
 use of the money only for eighteen months, the intended
 
 UNLIMITED LIABILITY 119 
 
 benefit to him becomes altogether illusory — nay, nega- 
 tive, supposing that he accepts it. For in the first case 
 the work will be carried out so as not to produce the 
 desired profit — the ship will have been spoilt for the 
 sake of a ha'porth of tar; and in the second he will, 
 before reaping the promised fruit, have to tax some 
 other source of income or liability, in order to meet the 
 claim of the bank. Here is a marked contrast. The 
 share bank takes care that the money lent is well em- 
 ployed ; but after all it lends on the financial goodness 
 of the borrower and his business. The unlimited lia- 
 bility bank is careful to see that it has a trustworthy 
 borrower to deal with, but it lends distinctly on the 
 security of the emplo^Tiient proposed. That is one rea- 
 son why, unlike a well developed share bank, the Raif- 
 feisen bank will have to be extremely chary in the use 
 of current accounts, which debar it from exercising the 
 same minute control over the emplo^Tnent of every 
 grant of money. We have not very far to go, as it 
 happens, to observe the prejudicial — it may be fatal 
 — consequences of a resort to current account practised 
 in the wrong place. For those disastrous collapses of 
 co-operative banks in the Union formed by the late 
 Dr. Haas, which have set the European Continent ring- 
 ing again with cries of distress, are distinctly traceable 
 to lax practice, one of the features of which was habit- 
 ual over-complacency in granting credit on current ac- 
 count, for the very insufficient reason, frankly owned 
 to in the published paper of the Union, that inquiry 
 in each particular case, such as Raiffeisen prescribed, 
 was found troublesome, and it was easier to grant a
 
 120 CO-OPERATIVE CREDIT 
 
 standing cash credit. Easier it is, no doubt; but it 
 also makes the loss of money very much easier. When 
 you set yourself to raise money, as the veteran econom- 
 ist M. F. Passy put it, " without a capital of guar- 
 antee," trouble is a thing that you must not grudge, 
 or you may be made to pay for it. Unquestionably 
 Eaiffeisen's system causes trouble; but it enables you 
 to do what, not under any other system, you could 
 accomplish. 
 
 The proper course is in every instance, before lend- 
 ing, to inquire — and -inquire very carefully — into 
 the use to which the loan is to be put. Under this as- 
 pect there are two points to be taken into account. The 
 first is, whether sum and time asked for are such as 
 the proposed emplojonent will justify. And the 
 second, whether the employment is a proper employ- 
 ment for the particular applicant to take in hand. The 
 bank is there to assist its members in the pursuit of 
 their legitimate business, not to finance them in risky 
 speculations. To a certain extent it goes into partner- 
 ship with the man who operates with its money; so it 
 has a good right to have itself advised about his ven- 
 ture. A peasant may be right in wanting to buy a 
 cow or a pig or some implement; a co-operative bank 
 would be untrue to its principle if it were to support 
 him in laying down a stock of corn, or sugar, or any- 
 thing else in expectation of a rise. That point apart, 
 the bank wants to judge if the proposing borrower asks 
 for the right amount, and asks it for the right length 
 of time. If his proposed purchase is a cow, he wants 
 a good animal, but not necessarily a pedigree beast, as
 
 UNLIMITED LIABILITY 121 
 
 if for a show. In the Swiss Viehleihhassen {Caisses 
 Thurgoviniennes) , which in their district do a deal of 
 good, the (civil) parish, acting as a co-operative bank, 
 with the unlimited liability of all the parish at its 
 back, buys the beast, at the borrower's choice, but sub- 
 ject to the approval of its own veterinary surgeon, and 
 does not part with its legal ownership of it till the 
 money borrowed is fully repaid. A bank cannot pro- 
 ceed in quite the same manner. Besides, it has the 
 man's sureties or other security to back up the loan. 
 It will take care that the beast is insured in an ofSce 
 approved by itself. But it will trust the sureties to 
 see that the man does not throw his — or rather their — 
 money away upon an unsuitable beast. However it 
 will not allow him more than is necessary for the pur- 
 chase of a good, useful beast, nor allow that for longer 
 than the money, transformed into the shape of a cow, 
 will take to reproduce itself. And it will act in the 
 same way in any other case — purchases of manure, 
 or seed, or land, or digging a well or draining a field. 
 The particular case may require six months or else 
 ten years. There are also non-agTicultural purposes 
 to take into account — poor folk, men and w^omen, of 
 good character, wishing to be enabled to work them- 
 selves up, it may be through hawking as a beginning, 
 to the possession of a little shop, or business, or of a 
 farm. There are plenty such cases on record that 
 have been successfully dealt with in Italy. There is a 
 case, which I have related elsewhere, which occurred at 
 Loreggia, near Padua, the birthplace of the Italian 
 Eaiffeisen banks, of a poor, seemingly bankrupt peas-
 
 122 CO-OPERATIVE CREDIT 
 
 ant, assisted at first only with a loan of $20. Bit by 
 bit he got on, to become in the end a thriving little 
 farmer, with beasts in his stable and money in the bank. 
 However all these cases want to be inquired into. The 
 Committee would be wrong in lending where there is 
 no prospect of recovering. In India the question has 
 been much debated whether money should be advanced 
 by co-operative banks for those famous Hindoo wed- 
 dings, which often result in the pledging of the still 
 ungotten babe, to result from the marriage, to the money 
 lender, as security for the loan — which pledge is 
 loyally honoured by the hapless mortal still to see the 
 light; or among Mahomedans for a sradh or funeral. 
 Both these functions are considered de rigueurj and 
 there must be feasting with them, in which the whole 
 village will join, and to which accordingly every vil- 
 lager will lustily egg on, to the money lender's satis- 
 faction. My advice was to allow such loans in suit- 
 able cases. And what I predicted has come to pass. 
 Instead of the villagers urging the borrowers to borrow 
 much, as they had previously done — the money lender 
 helping — in order that every one might have his full 
 share in the feasting, the fellow members in the bank 
 now carefully restrain the founder of the feast from 
 practising extravagance. He borrows the money re- 
 quired from the bank. And they know that they might 
 have themselves to pay for his liberality. The man 
 now still borrows, so as to keep even with custom. But 
 he borrows at less per cent., and less money, and cur- 
 tails the feasting, so that he no longer has any need 
 to pledge his unborn grandchild, but can comfortably
 
 UNLIMITED LIABILITY 123 
 
 repay the money in a few years. Presently he will 
 come to have the requisite money ready beforehand. 
 But we do not advance by seven league bounds. Where 
 there is previous indebtedness, co-operative banking 
 comes in as a saviour indeed. That was the original 
 object of these little banks in Germany and Italy. Mr. 
 Cent-per-cent kept the peasantry in peonage. The bank 
 stepped in — by a process as old as the hills, which the 
 ancient Eomans styled versura; and the margin between 
 5 per cent, and 50 or 100 per cent, made all the differ- 
 ence in the world. In India these debts used to drag 
 on from generation to generation. So accustomed had 
 men become to them that with a fatalist's patience they 
 bowed to the ordeal as to an ordinance of Providence 
 not to be resisted or evaded. ISTow a few years' thrift 
 will relieve the debtor, who finds new hope springing 
 up in his breast. However for all these things care- 
 ful discrimination and weighing of prospects and like- 
 lihoods have to be practised, such as the Committee, un- 
 der a sense of its own responsibility, kept alive by 
 Council and General Meeting, cannot grudge or stint. 
 In respect of repayment it is of the utmost impor- 
 tance that borrowers should be held to the strict fulfil- 
 ment of their duty, not merely on business grounds, so 
 as to enable the bank, which has to be chary of the use 
 of its — borrowed — money, to keep accounts square, 
 with as little loss of interest upon cash in hand as can 
 be, but also to train members to business habits, which 
 help them subsequently in all that they do. Eeally 
 anything may be forgiven rather than remissness in 
 repayment. The loan may be renewed — but that will
 
 lU CO-OPERATIVE CREDIT 
 
 be by consent of the bank, upon cause shown. The 
 debt may be repaid and a new one raised — but that 
 will be for a new object, which will stand for itself 
 and be considered by itself. It is much better that 
 this should happen than that loans should be allowed 
 to run on unexamined, as if they were current ac- 
 counts. The bank should be apprised of every object 
 and its approval should be asked. Whenever the debt 
 runs on for any length of time, it ought to be made a 
 rule that it be repaid by instalments — best equal in- 
 stalments spread at regular intervals over the period 
 agreed upon. 
 
 The bank will have to make sure of its security and 
 in every case to obtain the notice of assent, on some 
 proper form, from the sureties themselves and see that 
 everything is shipshape. 
 
 To be able to deal with all these cases the managing 
 committee should, as already observed, be in a posi- 
 tion to give prompt attention to applications. It is a 
 mistake to overburden its meeting with a cumbrous 
 agenda. The district is small, the people in it are 
 known to one another; cases as a rule speak for them- 
 selves. Time may be of moment. Here is a heifer 
 offered at a cheap price for to-day. There is a tempt- 
 ing opportunity for the purchase of some other article 
 of equal urgency. The man ought not be made to wait. 
 Where, as in some villages in France, there are only 
 three members to the managing committee, these may 
 consent on the spot, the chairman obtaining the ap- 
 proval of his colleagues on a morning or evening walk 
 through the village. With the fear of a strict Council
 
 UNLIMITED LIABILITY 125 
 
 before their eyes, these men are not likely to consent 
 to a wrong venture. Eegular attendance of some sort, 
 to take deposits and receive applications, are of course 
 desirable. And it will be for the benefit of the bank 
 and its members if the Committee meet regularly. 
 That will enable them to answer questions such as 
 every member of the bank has a right to put. For, as 
 observed, there is nothing to be kept secret about the 
 bank's doings except the deposits. The weekly or fort- 
 nightly balance sheet should be hung up in the office for 
 any member to see. However, provided that the Com- 
 mittee make arrangements for dealing promptly with 
 any cases arising, they need not tie themselves down 
 slavishly to any fixed days. 
 
 The office of the Council is to overhaul all that the 
 Committee has done, as well as* to audit its accounts 
 — which last named function may in a little bank like 
 that here contemplated very well be executed by per- 
 sons who are not skilled accountants. The overhaul- 
 ing as well as the auditing is done in the interest and 
 on behalf of the members generally, as a kind of pre- 
 cognition. Members cannot at their general meeting 
 go into details. The big blocks which they are set to 
 work upon require to be broken up into pieces of 
 manageable size. It is a mistake to make light of 
 this function, as if it were mere surplusage. Many a 
 bank, so it is true, may go on very well w^ithout a 
 Council and never come to grief. However, on the 
 other hand, wherever there has been a breakdown, 
 wherever there has been money misemployed or em- 
 bezzled, it has invariably been because there has been
 
 126 CO-OPERATIVE CREDIT 
 
 no Council or — which comes to the same thing — be- 
 cause the Council has not done its duty, has taken things 
 for granted. Checking is the soul of co-operative credit 
 banking. You cannot do without it. And it must be- 
 gin on the lowest stage. The Council knows its own 
 ground. It knows the people in the bank; it knows 
 their circumstances; it can judge whether the Com- 
 mittee has trusted any of them too much. And without 
 being offensive, it can hold the Committee to strictness 
 in the exercise of its functions. 
 
 Both Committee and Council at the end of the year 
 report to the General Meeting, whose authority is of 
 course supreme in the bank and whose consideration 
 of questions affecting the bank ought to be encouraged. 
 The two reports may deal with practically the same 
 things, but they will -deal with them under different 
 aspects. The one tells the facts. The other comments 
 upon and explains them. 
 
 There are certain questions specially reserved for the 
 judgment of members generally. The point of divi- 
 dend does not here arise, nor yet the point of carrying 
 surplus to reserve. For all that is settled in the gen- 
 eral constitution of the bank. Where there are shares, 
 an infinitesimal dividend may be allowed, limited to a 
 maximum figure — which dividend ought to be ear- 
 marked in advance for some particular and non-egotis- 
 tical object. Otherwise all surplus goes to reserve as a 
 matter of course — or it may be, in course of time, to 
 several distinct reserve funds. But there is one re- 
 serve which always will be of chief importance. The 
 name originally given to that reserve was " Endow-
 
 UNLIMITED LIABILITY 127 
 
 ment Fund " ; and that name correctly expresses its ob- 
 ject. For the moment it acts as an ordinary reserve 
 fund. That is to say that for any deficiencies arising 
 it may be drawn upon as a matter of course. How- 
 ever the German law very properly provides that it 
 must not be drawn upon concurrently with dividend 
 being paid. All surplus on the annual account must 
 be absorbed first. As time goes on, however, the re- 
 serve fund is, so far as it will go, to serve as an " en- 
 dowment " for the bank, become its capital — " capital 
 of guarantee" at first, to attract other money; after- 
 wards, when it becomes large enough also " working 
 capital " — so that in that case the ideal of some men 
 (M. Luzzatti among the number) would be realised, of 
 a fund being in existence subject to collective owner- 
 ship only and therefore permanent. On this ground 
 it will, beyond a certain limit, not be necessary to safe- 
 guard the reserve too rigidly against employment as 
 working capital. There must of course be a reserve 
 fund which is not so employed, but kept intact in a read- 
 ily realisable shape, so as really to serve as a reserve. 
 However these funds have, under favourable circum- 
 stances, a way of growing which sometimes makes them 
 very substantial for their requirements, and really too 
 big for ordinary reserve purposes. That is especially 
 so in Germany, where, freehold land being fairly dis- 
 tributed and readily saleable, dealings in real property 
 will frequently take place among small folk, most gen- 
 erally in this sense, that a man acquiring land makes 
 himself liable for payment of the purchase price by- 
 instalments for which he gives staged off bonds, which
 
 128 CO-OPERATIVE CREDIT 
 
 bonds the vendor used to dispose of to " Jews," who 
 often proved exceedingly exacting Shjlocks, foreclos- 
 ing mercilessly upon an unpaid instalment. JMow the 
 co-operative bank takes up the instalment bonds and 
 the purchaser is safe, even if he were not to keep up all 
 the paying terms to the very day. There is another 
 kind of real property business sometimes engaged in, 
 which occasionally brings in much money to the little 
 bank. A property in the market is sui*veyed and pro- 
 visionally pegged out in lots. These lots are put up 
 for sale at a mock auction, which binds the bidder but 
 does not bind the bank. Supposing that the bids come 
 up to the offered selling price or more, the bank pur- 
 chases the property and resells it according to the bids 
 made. That has, at times, yielded very substantial 
 profits. Where such dealings with real property are 
 not feasible, the reserve fund will of course accumulate 
 more slowly; but under good management, with no 
 drawing upon it for deficiencies, it should still gather 
 volume steadily. Many crumbs make a loaf. 
 
 Such operations as the mock sale just referred to 
 had, at any rate in the earliest stages of the life of a 
 bank, much the best be left to the decision of the Gen- 
 eral Meeting. The General Meeting will furthermore 
 have to determine from year to year for what amount 
 of lending it gives the governing bodies authority. To 
 the outside public the liability of members is unlimited. 
 Inside the bank members ought to limit it for them- 
 selves, say, what is to be the maximum amount loanable 
 to any one among them, and, it may be, also, the max- 
 imum amount to be loaned out collectively. That adds
 
 UNLIMITED LIABILITY 129 
 
 greatly to safety. Tliere is likely to be a maximum 
 fixed by the law of the land. However the bank may 
 desire to go below that. Supposing that a maximum 
 is fixed, the Committee can obviously exceed such only 
 on its own responsibility. The bank will not be liable. 
 
 In other respects it is better not to tie the hands of 
 the Committee overtightly, say, with regard to the rates 
 of interest severally on deposits and on loans. Decision 
 by the General Meeting is a process which takes time. 
 Circumstances might demand prompt action. 
 
 What has been said will give, in outline, a general 
 idea of what an unlimited liability bank of the Eaif- 
 feisen type is intended to be. There are minor details 
 which are rather matter for specific rules. For a de- 
 scriptive - account of the remarkable good that these 
 banks have done this is not the place. That has been 
 given elsewhere.^ It will be seen that, if on the one 
 hand, these banks can by no means claim the distinc- 
 tion of being — as is sometimes given out — the only 
 type of banks qualified to benefit Agriculture, they 
 have, on the other hand, an immense province of the 
 most useful and beneficent work specially assigned to 
 them, as distinctively their own, among the humble 
 toilers in country districts. They were never intended 
 for dense populations in towns. And they were never 
 intended for individually large business. Their work 
 is altogether " detail work." But it is the work of the 
 single bricks which collectively make up the big build- 
 ing. It is work which no other institution could per- 
 
 1 See the author's " People's Banks : a Kecord of Social and 
 Economic Success." Third edition. 1910.
 
 130 CO-OPERATIVE CREDIT 
 
 form with anytliing like the same thoroughness or suc- 
 cess. They are more successful and more efficient by 
 far than purely philanthropic organizations, which 
 deal out gifts or what may under stress of necessity 
 become gifts, because they throw the man to be bene- 
 fited upon his own resources and his own efforts and, 
 together with economic good, endow him with more 
 valuable and lasting possessions, a strengthened char- 
 acter and businesslike habits. There might be room 
 for them in the United States. And, it may be added, 
 they have never gone any^vhere — in the right place, 
 where there was need for them — but they have yielded 
 the same benefits and really astounding results.
 
 CHAPTEE V 
 
 CENTRAL INSTITUTIONS 
 
 Very little practical experience sufficed to bring 
 home to the pioneers of the co-operative banking move- 
 ment in Europe that, useful as were co-operative banks 
 in their separate existence, union among a number of 
 them must add greatly both to their stability and to 
 their permanence, valuaole attributes that these are, as 
 well as to their utility. On the very face of things, 
 it must strike people reflecting on the matter as almost 
 self evident that, if co-operation among individuals is 
 good, the extension of the principle to the point of co- 
 operation among co-operative organisations must not 
 only be fully in keeping with the character of the in- 
 stitution, but must also add considerable force in pre- 
 cisely the same way on a wider basis. 
 
 Now, combination or union may be in this connec- 
 tion effected in two distinct ways which will have to 
 be considered separately, although in practise their ser- 
 vices may occasionally without detriment be to some 
 extent combined. 
 
 In the first place there is union without any thought 
 of business, mainly for common consideration of com- 
 mon ends, the comparing of notes and experiences, the 
 
 study of new departures, uniformity within the ranks 
 
 131
 
 132 CO-OPERATIVE CREDIT 
 
 of the movement, propaganda, united defence of com- 
 mon interests, watching of legislation and the like. 
 There is no movement comprising a multitude of mem- 
 bers, which will not be the better for union of this sort. 
 The remarkable success achieved by German Unions 
 for the promotion of German credit, which have studied 
 common action from a very early period of their exist- 
 ence — the Schulze-Delitzsch Union was the first co- 
 operative union to be formed at all, as long ago as in 
 1859, preceding by a full decade the " Co-operative 
 Union " of the United Kingdom — goes far indeed to 
 support this assumption. oSI^ot only have the many or- 
 ganisations forming part of it derived unquestionable 
 economic benefit from such union, and has the progress 
 of the movement been decidedly accelerated, but, once 
 union had come to take full effect, the banks of this 
 type have issued from the process with a pronounced 
 stamp of uniformity and a cachet of quality impressed 
 upon them, which have greatly added to their standing 
 and credit, making business much easier and actually 
 inspiring envy in others. There are as excellent banks 
 among the Italian banche ijopolari. M. Luzzatti, their 
 founder, will have it that the best of them even excel 
 the best German in co-operative character. But he 
 himself admits that in the ruck they do not come up to 
 the same standard. That is simply because there has 
 not been a union to teach every one of them what the 
 others are doing, to whet the intelligence of the admin- 
 istrators, by bringing them regularly to compare notes 
 with colleagues from elsewhere and — above all things 
 — to exercise a moral authority and discipline over
 
 CENTRAL INSTITUTIONS 133 
 
 them and so make for homogeneity, mainly by that ad- 
 mirable institution, union inspection — of which there 
 will be something more to say in the succeeding chap- 
 ter. Suffice it here to point out that at the annual 
 congresses of the Union the sittings of the Union In- 
 spectors, discussing common experiences in inspection, 
 form one of the most interesting and instructive fea- 
 tures. Late in the day, accordingly, has M. Luzzatti, 
 quite recently, addressed himself to supplying what is 
 lacking in Italy, in the shape of an organised union 
 and inspection by union officers. A Union speaks and 
 acts with authority — within its own ranks and with- 
 out. It represents the considered, the carefully ma- 
 tured opinion of " the movement." That opinion is 
 likely to be correct, because it is based upon most varied 
 experience and upon the reflection of many expert 
 minds. Legislatures cannot pass it by. Political 
 authorities cannot ignore it. And, for the movement 
 itself, in the multitude of counsellors there is likely to 
 be found wisdom — and, in this case at any rate, also 
 disciplinary power — disciplinary power which is 
 moral, but which might, in extreme cases, find its ex- 
 pression in expulsion — such as could not fail to im- 
 pair the status of the bank expelled. Union accord- 
 ingly makes for strength, and quality, and authority, 
 and deserves to be practised wherever it is possible 
 among organisations of the same type, more particularly 
 in a movement which necessarily relies on recognised 
 status and as necessarily aims at propaganda. In Ger- 
 many, although of course there is no compulsion or 
 even pressure of any kind used to make societies enter
 
 134, CO-OPERATIVE CREDIT 
 
 a union, and although there are some very good banks 
 which have remained outside, nevertheless co-operative 
 banks generally have gained greatly by union and are 
 aware of the fact. 
 
 In the second place, there is union for business pur- 
 poses. Relatively strong in capital as a successful co- 
 operative bank may be, in its absolute financial power 
 it will necessarily fall short — possibly by a great 
 deal — of the status of a capitalist institution of the 
 same sort. The difference will necessarily be ac- 
 centuated by what practically will be the amateur char- 
 acter — from a business banker's point of view — of 
 the managing officers in the movement. The latter 
 does not want and could not maintain fully trained 
 bankers. Its objects are different from those of capi- 
 talist banks, its transactions are more circumscribed, it 
 looks for different services, such as a trained banker 
 in many cases conceivably could not render, but the 
 lack of which may place the co-operative bank at a 
 disadvantage in the great banking market. 
 
 Kow at this point, just as in the union of members 
 to a single bank, combination may with certainty be 
 counted upon to make good at any rate much of that 
 which is wanting. It makes the single dollar go further 
 and produce more wealth-creating work — like the gold 
 lodged in the cellars of a great national issue bank, 
 sav, the Bank of England or of France. This consid- 
 eration comes all the more weightily into account in 
 an institution which may have a certain amount of 
 hostility and opposition to encounter. It may become 
 a case of "United we stand, divided we fall." The re-
 
 CENTRAL INSTITUTIONS 135 
 
 sources of each individual bank are, as already ob- 
 served, likely to be circumscribed. The small capital 
 of each may not at all times be sufficient by itself for 
 the calls made upon it — while its neighbour may at 
 the same time be wallowing in money. Let the two 
 join hands, and combined they will be able to achieve 
 very much more than in separation, each by itself. 
 And the broader the basis, the more comprehensive the 
 union — which is perfectly feasible without interlock- 
 ing of liability, such as must needs be kept apart for 
 every member-bank — the more marked will be the 
 strengthening effect. 
 
 It may be well from the outset of the present con- 
 sideration to call special attention to this aspect of the 
 question, because another, false, aspect has been more 
 and more forced into the foreground, which has pro 
 tanto led the issue on this particular point upon per- 
 ilous ground. It is above all things as a balancing 
 centre, a clearing house, that a central organisation for 
 business purposes among co-operative banks is wanted 
 — to make the capitals and machinery of the banks 
 united supplement one another, thereby achieve more, 
 to act as a bank of banks, in which local banks may have 
 their several accounts, the funds being available for 
 common use under separate responsibility, becoming 
 serviceable for all — just as in the banking department 
 of the Co-operative Wholesale Society of England (a 
 most successful institution) and the surplus funds of 
 the members of that body, the local societies, collected 
 into one common cash box, suffice for the use of each 
 individual one — and for very much more.
 
 136 CO-OPERATIVE CREDIT 
 
 There is more, besides, that union for business pur- 
 poses may accomplish. We possess the proof, once 
 more, in that distinguished Union, the Union of co- 
 operative banks of the Schulze-Delitzsch type in Ger- 
 many. These banks have, solely by means of union, 
 secured — outside the business sphere of a central bank 
 — for their members most valuable banking benefits. 
 They have been among the first to acclimatise the 
 cheque in Germany, and with the cheque also the clear- 
 ing house, among themselves. They have introduced 
 a common collecting union — which is found most 
 valuable — banks within the Union undertaking to 
 present bills, acceptances and cheques for payment and 
 collect accounts free of charge for one another through- 
 out the Empire. They have worked out for themselves 
 that system of society inspection which has now on 
 the European Continent become a common rule and is 
 at present insisted upon by legislation. They have like- 
 wise, not to carry the catalog-ue of their services any 
 further, organised a regular information and inquiry 
 service for members of the Union. Bill drawing, or 
 else (in the South) presentation of acceptances, are 
 common practices all over Germany. Scarcely any- 
 thing is done in business without the use of such in- 
 struments of credit — all the more since cheques are 
 only of very recent introduction and even now far from 
 general. Of course these instruments of credit are 
 abused. There are bucket shops in Germany as else- 
 where. And time was when co-operative banks suffered 
 serious loss by their fraud. The information service 
 has set that right — for the Schulze-Delitzsch banks.
 
 CENTRAL INSTITUTIONS 137 
 
 It has become so widely spread and so searching in its 
 inquiries that " Othello's occupation is gone," or all but 
 gone, so far as united co-operative banks are concerned. 
 But these are really only adventitious services, over 
 and beyond the principal one, which is, as already in- 
 dicated, that of providing a balancing institution, hav- 
 ing the character of a central bank, in which overplus 
 and deficiency occurring in the several local banks may 
 be equalised. There is an additional service which 
 may be demanded from such an institution. Times 
 will come when even the collective means at the dispo- 
 sal of these combined banks will prove unequal to an 
 exceptional demand for credit — just as there have 
 been times when there was too much money and too 
 little business. In such emergencies a central bank 
 will be far better able than individual banks, and on 
 more favourable terms, to place itself into communica- 
 tion with the great money market, to unload there the 
 excess of collected funds, or else to tap it by borrowing 
 for the benefit of its atliliated societies. It will repre- 
 sent greater strength than they and therefore obtain 
 better terms and operate with greater ease and freedom. 
 And it will also be better qualified for such business 
 on other grounds. The banking of local banks is dis- 
 tinctly a different kind of banking from that of the 
 great banking world. Its practises are different and 
 its wants are different. It is built up upon a co-opera- 
 tive basis, which will be all the better for its own 
 purposes the more genuinely co-operative it is — which 
 is admirable for safety, but ties the hands of adminis- 
 trators not a little. In Germany where, among co-
 
 138 CO-OPERATIVE CREDIT 
 
 operative banks on a share basis, commercialism is often 
 strong, banks laying themselves out for larger and more 
 varied business have sometimes found co-operative or- 
 ganisation restricting their capacity for quick action, 
 and have therefore — ill-advisedly — forsaken Co-op- 
 eration, to become joint stock companies. Their direc- 
 tors have freely owned to me that they get on much 
 better on this footing. Xo doubt they do; but the 
 members have thereby lost the valuable — almost in- 
 valuable — possession of a bank of their very own, the 
 services of v/hich they could claim as a matter of right 
 and the management of which they could control. 
 
 A central bank will necessarily assume to a far 
 greater extent the character of a commercial bank. It 
 is to form the connecting link between co-operative and 
 commercial banking. Its business will be to under- 
 stand the system of co-operative banks and adapt itself 
 to it, but also to deal for them in the great banking 
 market. It will in fact have to render the same service 
 to its affiliated banks that a " transformer " in the elec- 
 tric service renders to subscribers to that service, con- 
 verting the " high tension " current coming to it from 
 the generator into " low tension " current for practical 
 use at the several stations. Its officers will have to be 
 trained for the business of the wider banking market; 
 they will be more of trained bankers. And, being a 
 bigger bank, the central bank can afford to employ such. 
 
 Unfortunately this " tapping " and ^' financing " 
 business has come to be given the precedence over the 
 balancing action in only too many quarters. There 
 can be no question that newly formed co-operative banks
 
 CENTRAL INSTITUTIONS 139 
 
 often experience difficulty in raising the requisite first 
 funds. Scliulze had difficulty of this sort to contend 
 with; and so had Kaiffeisen. And in respect of Italy 
 the good services which the free Savings banks of that 
 country, and also the commercial banks, have rendered 
 to co-operative banks in their early years — although, 
 as M. Luzzatti has repeatedly insisted, not as a work of 
 altruism, but in their own interest — should not be 
 forgotten. But co-operative banks, as national author- 
 ities here and there held, it was desirable that there 
 should be. Accordingly it has been judged advisable 
 to endow special institutions for them, to provide the 
 first nourishment for the newly born babe. And, as 
 habits grow upon people with continual use, such 
 " sucking " of the motherbank has become a recognised 
 and confirmed practice, carried far beyond the limits 
 of babyhood, and accepted as a permanent benefit, an 
 enduring foundation for the fabric raised upon it — to 
 the loss of all the more valuable benefits of common ac- 
 tion and the renunciation of all genuine Co-operation. 
 
 This abuse apart, central banking institutions, al- 
 though in no wise indispensable, have proved exceed- 
 ingly useful organisations, presenting however in their 
 creation certain difficulties — for which reason it is all 
 the more desirable that their systems and benefits, and 
 the dangers to which they are exposed, should be briefly 
 explained. 
 
 There are, in the main, three distinct schemes of or- 
 ganisation to be taken into account, each of which has 
 its own advocates. As a common rule for all it may 
 be laid down that in this application unlimited liability
 
 i46 CO-OPERATIVE CREDIT 
 
 is not admissible. There can be not the slightest doubt 
 about that. Unlimited liability has had to be resorted 
 to before limited liability had become legally recog- 
 nised, and it has answered badly, as in fact it was 
 bound to do. For the conditions for its successful ap- 
 plication are in this connection wholly wanting. Of 
 necessity it has in this case to be exercised without the 
 full knowledge and consent of those upon whom its 
 obligations ultimately rest. The body which admin- 
 isters it will necessarily be distinct from those who 
 answer for it. That body may be properly elected by 
 them. But there cannot possibly be the requisite touch 
 betvveen the two. You can, with safety, make yourself 
 unlimitedly liable only when you have knowledge and 
 full power of control with regard to whatever is being 
 done. That cannot be in a central bank, in which the 
 liability of various banks, and through them of their 
 members, must become prejudicially interconnected and 
 entangled, so that no one will quite know what he is 
 responsible for. x\s the Latin proverb has it, " the 
 pig may be made to pay for what the dog has done 
 amiss." Liability must in every case be limited, and 
 it will best be limited to the actual amount of the share ; 
 for then there will be no power of payment left in 
 doubt. 
 
 Another general rule is, that in a central bank co- 
 operative organisation is out of place. Co-operative 
 spirit there should be — distinctly so. But the legal 
 form of the organisation should be that of a joint stock 
 company. That has likewise been made clear by ex- 
 tensive experience. For a larger body joint stock or-
 
 CENTRAL INSTITUTIONS 141 
 
 ganisation provides far greater freedom of action and 
 the difference made in the form of registration will 
 serve to emphasise the essential difference in the char- 
 acter of the two institutions and their separate responsi- 
 bility, each one for itself. 
 
 This being premised, it may be said that the proposed 
 central bank may be either a bank of banks — started, 
 so it may be, with some private capital, but certainly 
 destined eventually to become the property of the banks 
 to which it ministers, they being its shareholders and 
 governing it through their elected Board. The Cen- 
 tral Bank of the Eaiffeisen Union is an organisation 
 of this sort ; and so is the Central Bank of the excellent 
 co-operative banks of the Schulze-Delitzsch type in the 
 Polish provinces of Prussia, which on political or racial 
 grounds form a distinct union. 
 
 Or else the central bank may be a bank primarily of 
 the capitalist type, owned by shareholding capitalists 
 — with some representation given to the co-operative 
 societies with which it is proposed to do business — but 
 created to do business of a general kind on its own ac- 
 count, though opening accounts also, as a special fea- 
 ture, to co-operative banks, taking their overplus cash 
 and supplying them with credit as occasion may re- 
 quire. Such a bank was that of Sorgel, Parisius and 
 Co., which for a long time served as a central bank for 
 the German Schulze-Delitzsch societies. Such — in a 
 manner — is now the powerful Dresdner Baiik, which 
 in such connection has taken the place of that just men- 
 tioned, in so far as, after amalgamating with Sorgel, 
 Parisius and Co., it has instituted a separate co-opera-
 
 142 CO-OPERATIVE CREDIT 
 
 tive section, to the Board of which it has admitted rep- 
 resentatives of the co-operative banks to be dealt with, 
 as directors. That same bank also acts in a similar 
 capacity, so it may at once be mentioned, at the back of 
 their own Central Bank, for the Raifieisen societies. 
 
 In the third place there are central banks formed al- 
 together with outside capital, whether public or private, 
 as wholly independent institutions for the benefit of co- 
 operative banks, which they merely undertake to 
 " finance," as a business of their own, to bring them 
 profit, or else as an act of patronage. In this shape the 
 idea of a balancing centre becomes relegated to a second 
 place or else, it may be, altogether neglected, and the 
 primary object of the central bank becomes that of 
 " financing," providing local banks with money. That 
 is not a genuinely co-operative object. It is accord- 
 ingly not at all approved of by co-operators believing 
 in self-help. Of this type are the State-endowed Cen- 
 tral Co-operative Bank of Prussia and several other 
 banks formed in imitation of it in other parts of Ger- 
 many, and the Central Banks of Roumania and 
 Hungary, and — although it is not a bank in form — 
 essentially also the French Credit Agricole. 
 
 Now of these three types the first presents itself as 
 the most natural under the circumstances, an institution 
 which plainly explains itself. It is Co-operation car- 
 ried one step higher, from co-operation among in- 
 dividuals to co-operation among co-operative societies 
 formed of such individuals. One drawback to it is 
 that under such conditions it is not always easy to col- 
 lect sufiicient cash — which difficulty has all the more
 
 CENTRAL INSTITUTIONS 143 
 
 to be taken into account since the business of the central 
 bank must under the co-operative principle which 
 dominates it, be so ordered as not to produce much 
 profit. Co-operative business is safe business; but it 
 is not highly paying business; and it may be slow. 
 Therefore it demands in the central organisation a 
 certain command of money to be depended upon, upon 
 which local banks may draw as need suggests. But a 
 collective bank formed of purely local banks, which 
 were themselves formed by members whose impelling 
 motive is their want of cash, is not likely quickly to 
 accumulate such. Another drawback is this, that un- 
 der such arrangement you practically set men who may 
 be excellent co-operators and capable of administering a 
 co-operative bank on the lower plane to perfection, to 
 act under great responsibility in a province not at all 
 their own, that is, as commercial bankers. That is a 
 dangerous experiment. The Polish banks have sur- 
 mounted both these obstacles because, in the first place, 
 they have a strong nationalist feeling at their back, 
 which is constantly being stimulated by German perse- 
 cution and which prompts sacrifices for the " cause." 
 Moreover they are all share banks, disposing of fair 
 amounts of money. Also, for their simple purposes — 
 the " balancing " action predominating altogether — 
 they are very efficiently organised and well officered. 
 The Eaiffeisen Central Bank has had occasional trouble 
 about the provision of money ; but, generally speaking, 
 in its proper capacity, as a central bank for local banks, 
 it has answered exceedingly well. And its very trials 
 have brought out with telling force the substantial re-
 
 144, CO-OPERATIVE CREDIT 
 
 sources which Co-operation places at the back of its in- 
 stitutions. To say that " it has had its occasional trou- 
 bles about the provision of money " does not at all mean 
 that in general its credit has not sufficed for its wants. 
 So strong, on the contrary, did it feel in the possession 
 of its credit resources that, in 1895, when the Prussian 
 Government set up its State endowed Central Bank, 
 it flatly refused to enter into relations with it, because 
 it knew very well how to supply itself with money with- 
 out such help. So strong was its financial position that 
 the Imperial Bank of Germany allowed it preferential 
 discount terms. It was eventually prevailed upon to 
 accept State bank credit, Government pressure proving 
 overpowering. But not many years passed before it 
 saw reason to regret such yielding and it lost no time 
 in throwing off the promised " support " which had 
 revealed itself as a galling yoke. As a central bank 
 for village banks the Eaiffeisen Central Bank answers 
 its purpose perfectly. As a central bank for large 
 quasi-commercial banks like those of Schulze-Delitzsch 
 and M. Luzzatti it would probably answer less well. 
 But it is very suitably adapted to its own peculiar en- 
 vironment. And the very centralisation on which it 
 is based, which is sometimes found fault with by adhe- 
 rents of other schools, is altogether in its favour. For 
 that centralisation ensures uniformity, general accept- 
 ance of the same principles and methods, and it enables 
 it to '' balance " among districts far removed as well 
 as among individual banks. The benefits are very ap- 
 parent. Operating all over Germany, the Central Bank 
 has to do with districts marked by absolutely different
 
 CENTRAL INSTITUTIONS 14,5 
 
 features — some densely populated, industrial and agri- 
 culturally highly developed, " intensive," like those in 
 the West of the Empire, where money is plentiful and 
 cheap and deposits are voluminous ; others sparsely pop- 
 ulated and primitive, in which industry is practically 
 unknown, and agriculture extensive and backward, such 
 as those in the East, bordering more or less upon Rus- 
 sia. Since the Central Bank operates, not for profit, 
 but for service to local banks, and there are no inter- 
 mediate tolltakers — as there would be if the business 
 were not centralised — it can readily make the over- 
 flowing deposits or cheaper loans of western districts 
 available without a rise in interest for the wants of 
 the eastern. This, so it needs not to be pointed out, 
 has been found a valuable benefit. And such services 
 as this tend to keep the Union " together." There 
 may be room for similar services in the United States. 
 Under the organisation of the Eaiffeisen Central Bank 
 the sectional offices are branches, not independent es- 
 tablishments. The reins of the business are held with 
 a firm grip by the central establishment. The ruinous 
 disasters which recently clouded over the horizon of 
 co-operative banking in Germany occurred, not under 
 centralisation, but quite the reverse, under the sway of 
 the independent system, which was set up in opposition 
 to the Eaiffeisen system, which prides itself upon its 
 distinctive feature of Decentralisation and which makes 
 every district bank its own uncontrolled master. 
 
 The fly that has in the Eaiffeisen Central Bank even- 
 tually been found in the ointment — on two several 
 occasions — sprang from an altogether different breed-
 
 146 CO-OPERATIVE CREDIT 
 
 ing place. The gentlemen who presided over the Cen- 
 tral Eank were good men, but they were not expert 
 bankers, in the accepted sense of the term. They were 
 animated by great co-operative zeal, which prompted 
 them to offer help to co-operative institutions of their 
 Union beyond what was safe. The heap of gold under 
 their management dazzled them.. Was there not " corn 
 in Egypt " ? They did not realise what heavy claims 
 there might be made upon that hoard. Also in their 
 optimism they made light of risks in other ventures, 
 carried far beyond what co-operative ventures should 
 be — which risks eventually found them out. To be- 
 gin with — under temptation — they made the mistake 
 of bracketing dealing in goods with banking. There 
 was probably more provocation for this than the mere 
 difficulty of finding any other body to take over the 
 central trading. The circumstances were peculiar. 
 Eaiffeisen societies, as already observed, are not banks 
 only, but societies for all purposes. The Central Bank 
 Lad become their recognised centre. That was good 
 enough while the main business consisted of banking. 
 But trading had meanwhile assumed larger dimensions 
 and called for a central organ. That collective trading 
 had up to the time spoken of been conducted by Eaif- 
 feisen himself and some people in his confidence, act- 
 ing as a private firm, but not for profit. Their con- 
 duct came to be called in question by opponents. 
 They were said to be making broad their phylacteries 
 of altruism while netting a very good profit for them- 
 selves on the sly. To meet this slander they resolved 
 to hand over the business to some electively organised,
 
 CENTRAL INSTITUTIONS 147 
 
 responsible body. Now was it advisable to start a 
 second " centre " ? The leaders of the societies thought 
 not. Besides, the bank, as a bank, had in early days 
 a sti*uggle to carry on. Its business was safe, but left 
 little margin. There was the central trading. And 
 there was as yet no organised body to take it in hand. 
 Things were simple in those days. Trading, as the 
 immense capital amassed by the two great Wholesale 
 Societies of England and Scotland sufficiently demon- 
 strates, yields ample profits. The trading would per- 
 mit the Central Bank to render its services all the more 
 cheaply. Precisely the same combination was subse- 
 quently adopted by the Haas Union. All the same this 
 was a huge mistake, which I denounced rather em- 
 phatically in a paper that I read at the International 
 Co-operative Congress held at Buda Pest in 1904. 
 Both unions named abandoned it shortly after, and both 
 are the better for the change. But what mainly 
 damaged the Eaiffeisen Central Bank was its stepping 
 outside its own province — with thoroughly good " co- 
 operative " intentions — to buy sites in advance for 
 co-operative works and warehouses still to come, to run 
 unprofitable superphosphate works, and to prop up with 
 its credit shaky co-operative undertakings which should 
 never have been entered upon. All this was, not Co- 
 operation, but Speculation. It brought about a crisis. 
 However the value and sufficiency of the Central Bank 
 as a central bank was promptly and all the more con- 
 clusively demonstrated by the remarkable ease with 
 which it recovered from the blow — a heavy one — 
 saving up money rapidly out of its annual surpluses
 
 148 CO-OPERATIVE CREDIT 
 
 such as places the early repa^Tiient, with interest, of 
 the contribution of $187.50, which had to be asked for, 
 as a voluntary levy, from each of the more than 4,000 
 societies affiliated, altogether beyond doubt. As a cen- 
 tral bank proper the Kaiffeisen Central Bank has won 
 its spurs. Its new arrangement with the great Dres- 
 dner Bank — after its rupture with the ever domineer- 
 ing State-endowed Bank — renders its position as secure 
 as well can be. It leaves it to deal with its local banks 
 alone and commits all dealings with the banking mar- 
 ket to that commercial institution very much better 
 equipped and qualified for such business. Within the 
 limits of safe banking it secures to it an almost un- 
 limited command of money, as well as a receptive lodg- 
 ing place for excessive deposits. 
 
 The second form of central bank possesses, like the 
 first, just discussed, its distinct recommendations, but 
 for different circumstances. It was Schulze-Delitzsch's 
 favourite form. He laboured hard to carry it into 
 realisation. Co-operative banking business being only 
 sparingly remunerative, a central bank well endowed 
 with capital, to live, required other business to assure 
 its existence. Being safe, on the other hand, co-opera- 
 tive banking business constitutes an excellent extra sup- 
 port, to " fill up." After various preparatory experi- 
 ments Schulze managed to start a bank, a not incon- 
 siderable part of the share capital of which came to be 
 held by co-operative banks, and on the Board of which 
 there were co-operative bankers of recog-nised authority. 
 Once more, the purely co-operative business proved en- 
 tirely satisfactory. The bank was in this case freely
 
 CENTRAL INSTITUTIONS 149 
 
 called upon to provide credit; and in every good case 
 it provided such. However the same demon of specu- 
 lation which injured the Eaiffeisen Central Bank some- 
 how got into directors' minds. Temptation to this is 
 nothing uncommon. And it requires a good deal of 
 resolution and principle to withstand it. There ap- 
 peared to be a golden opportunity. Why not break 
 through the stiff, cramping rule ? In the feverish bub- 
 ble days of 1873 the People's Bank of Milan nearly 
 ventured itself upon this rock, on which it would in- 
 fallibly have split. And other People's Banks, such 
 as those of Genoa and of Brescia, have actually found- 
 ered on this reef. In Germany it was likewise what 
 M. Luzzatti has called hancomania which worked the 
 mischief. German banks had been led generally to 
 develop the speculative side of banking. Speculative 
 banking indeed became the ruling feature among them. 
 They became what Germans themselves frankly call 
 " speculative banks." They started companies, fi- 
 nanced industrial undertakings, and embarked upon 
 all sorts of risky enterprises which brought them in fat 
 dividends. The shareholders of the Schulze-Delitzsch 
 bank — Sorgel, Parisius and Co. — began to feel un- 
 comfortable in their old-world low-per cent, safety. It 
 seemed to cast a slur upon them. Why should they not 
 do as others were doing and rapidly fill their pockets? 
 The directors weakly gave way. They were very 
 capable men for quiet, unsensational, co-operative bank- 
 ing. But speculation turned out to be out of their line. 
 Loss followed upon loss. Fatal disaster appeared im- 
 minent — • when, as a deus ex machina, the Dresdner
 
 150 CO-OPERATIVE CREDIT 
 
 Bank providentially stepped in to offer amalgamation. 
 Amalgamation was effected and saved the threatened 
 bank. JSTow the Dresdner Bank, with the old " co- 
 operative " bank within it, is practically the central 
 bank for these exceedingly active and useful co-opera- 
 tive banks, and the arrangement works to the satisfac- 
 tion of both parties. For active banks, doing a large 
 business, probably no better arrangement could be 
 devised. 
 
 The troubles and trials of these two types of central 
 banks, which types have certainly been vindicated in 
 their purity, were worth telling of, because they show 
 how very dangerous it is for co-operative institutions 
 to step outside their own proper sphere. Wherever 
 co-operative banking is taken up afresh, temptation to 
 go astray seems to present itself. It should be rigour- 
 ously guarded against. For yielding to it has to be 
 paid for. 
 
 The third type of central bank it is difficult to char- 
 acterise as anything but an abuse. It starts from the 
 false assumption that Co-operation cannot provide suf- 
 ficient funds for its own. maintenance and that it wants 
 to be artificially propped up with funds contributed by 
 patrons not directly interested in its benefits. That 
 means putting the whole scheme upon an entirely false 
 foundation. It abandons Co-operation with its sure 
 promises of steady growth, stimulating independence 
 and continuous creation of new values, for patronage 
 with its inherent deadening weakness, its enduring de- 
 pendence, caprice and dwindling results. Of the fault- 
 iness of the principle suggesting such change I will not
 
 CENTRAL INSTITUTIONS 151 
 
 here speak. The proper place for considering that will 
 present itself in a succeeding chapter. However it 
 must be evident that, as a mere technical matter, un- 
 der such circumstances the central bank assumes a com- 
 pletely changed character. From a balancing station, 
 helping to keep the local banks self-supporting, with 
 occasional drafts upon the general banking market 
 figuring in the second rank, as an emergency source of 
 supply, it becomes distinctly a money providing bank 
 destroying self-reliance; and it is balancing which re- 
 cedes into the background, as a purely secondary ser- 
 vice. Obviously that denaturates the character of the 
 bank and undermines the co-operative principle. For 
 success Co-oper-ation depends for the most part upon co- 
 operative spirit; but you cannot look for co-operative 
 spirit amid such surroundings. 
 
 The most striking example of such organisation for 
 central banking is to be seen in the State-endowed Cen- 
 tral Co-operative Bank of Prussia — and now prac- 
 tically of Germany — and institutions formed in imi- 
 tation of it. But things are not very different in Hun- 
 gary, where the Crown and great magnates have com- 
 bined to endow a bank " to borrow from," which their 
 nominees administer. And in France it is only the 
 form of organisation which has been altered — for very 
 obvious reasons. In 1894, at the annual meeting of the 
 Societe des Agriculteurs de France, the late President 
 Senart, on the Government's behalf, solicited the assent 
 of French agriculturists to a scheme for endowing a 
 central bank — with a ridiculously inadequate sum of 
 public money. He pleaded for such a bank as a " ne-
 
 152 CO-OPERATIVE CREDIT 
 
 cessity." I immediately ckopped in with a correction, 
 substituting the word " convenience." I had the Agri- 
 culteurs de France with me. The scheme fell through. 
 Next year Prussia led the way with the creation of a 
 State-endowed Central Bank. It would of course not 
 do for France to tread in Prussia's footsteps. So the 
 scheme was altered, although the principle was re- 
 tained — and the endo"wment was immensely increased. 
 That scheme has been given effect to in the shape of the 
 Credit Agricole, which employs ample money extracted 
 from the Bank of France as the price of the renewal 
 of its charter, to distribute among farmers. The Gov- 
 ernment professes to be very proud of the results that 
 it has achieved — just as was Lord Cromer of the sup- 
 posed success of his (non-co-operative) "Agricultural 
 Bank of Egypt," until that business broke down under 
 an excessive burden of arrears, too numerous to admit 
 of the invocation of legal process, and the introduction 
 of " homestead " rights, which ruined the credit (here 
 relied upon) of small farmers. As to the Credit Agri- 
 cole of France, a Select C'ommittee of the Chamber has 
 last year offi.cially reported that there likewise repay- 
 ments fall short — in addition to which reserves (and 
 capital generally) are only slowly accumulated. This 
 scheme had the good fortune of enlisting the admira- 
 tion of the " American Commission." However the 
 French Government itself is dissatisfied with it and 
 has prepared a thorough recast of the law, while the 
 very important Agricultural Syndicates representing 
 independent agricultural opinion have risen in rebel-
 
 CENTRAL INSTITUTIONS 153 
 
 lion against it and have begun to organise an inde- 
 pendent system of their own. 
 
 One can not judge the cases of Russia, of India, and 
 of the neglected parts of Italy — the South and Sar- 
 dinia bv the same rigourous standard as those of more 
 developed countries. Their cases deserve only passing 
 mention here, because the assistance given — and tem- 
 porarily necessary — is not given through central banks 
 in our present meaning of the term — except, unfor- 
 tunately, in Bombay Presidency. That, with the ex- 
 ception mentioned, such assistance is taken only as a 
 bona fide temporary help is apparent — in India from 
 the fact that after ten years it has already become prac- 
 tically superfluous and has in fact almost ceased; in 
 Eussia from the fact that the many co-operative soci- 
 eties forming, giving proof of creditable vigour and 
 longing for independence, are striving to throw it off 
 as soon as can be. In Italy we may in due course look 
 for similar results. 
 
 However, these cases are quite exceptional and do 
 not really arise under the aspect which we are here con- 
 templating. Quite briefly to summarise the defects 
 of " financing " central banks like those instanced, be 
 it said that they import a principle which is entirely 
 foreign and indeed hostile to Co-operation. They make 
 beneficiaries to look for benefits from without, which 
 Co-operation would have them create for themselves. 
 They remove the inducement to watching and checking 
 — and also to economising. The central bank, not be- 
 ing the banks' own, as a matter of necessity applies its
 
 154 CO-OPERATIVE CREDIT 
 
 own particular test of — to use Scliulze's rather un- 
 couth German term — "creditworthiness," which test 
 is not that which vigilant observation by responsible 
 fellow members, acquainted with the merits of each 
 case, would suggest, but purely mechanical. It lays 
 down fixed common rules — such as no banker, dealing 
 with that delicate commodity, credit, would care to 
 apply — treating all cases alike — rules which are apt 
 to become a mere matter of form, or else unduly inquis- 
 itive. Thus, in Prussia, the bank asks to see members' 
 private assessment to income tax, and the like, which 
 should in fairness be kept secret. Harsh and hinder- 
 ing at points, it becomes at other points loose and un- 
 reliable. Under such regime the object of a local bank 
 desiring credit becomes, not to provide genuine security 
 but to satisfy certain formulas laid down. But you 
 cannot measure " creditworthiness " by a mechanical 
 standard. One serious result — as we have lately 
 seen — of such handling of credit is a dangerous laxity 
 in checking and control. The Union of German co- 
 operative banks, some of which came disastrously to 
 grief recently with a resounding crash, is dependent 
 for its supplies upon the State-endowed Bank. And 
 the official inquiry instituted by the Court of Law has 
 showTi that it was laxity of control which mainly caused 
 the defaults and first brought on and then concealed 
 long continued, increasing insolvency. 
 
 Also these patronising Central banks are most in- 
 convenient messfellows. It was the attempt openly 
 made by the State-endowed bank of Prussia, miscal- 
 culating its opponents' supposed weakness, to make it-
 
 CENTRAL INSTITUTIONS 155 
 
 self absolute master aud to use the co-operative banks 
 as a convenience to itself, vi^hich led the great Eaiffeisen 
 Union to break loose from it in indignant resentment. 
 And if the State patronised " Trade Co-operative 
 Credit Societies " in Prussia have not yet followed such 
 example, it is not because they do not feel the gallsore 
 — they have openly complained of the Bank's unfair- 
 ness to them — but because they lack the power. And 
 even the gi*eat Imperial Union, which is the bank's 
 most faithful client on the co-operative side, has winced 
 not a little under the yoke, as the late Herr Haas has 
 himself confessed to me at one of the Union Con- 
 gresses, when his colleagues in their anger threatened 
 to rise against their master in rank rebellion — but 
 found that they likewise were too weak to do so. 
 
 All such outside central institutions had best be left 
 alone. Co-operation without self-help and absolute 
 self-government becomes a mere name and cannot pro- 
 duce the results looked for. 
 
 There is one form of " central bank " still to men- 
 tion, which is found very useful in the present early 
 stage of development of Co-operation in India, but 
 which is really only a specimen of the first type dis- 
 cussed — a bank of banks — on a reduced scale. 
 Something similar may possibly be found useful else- 
 where. iSTot only are the rayat members of the newly 
 formed little banks in India very poor — which means, 
 among other things, that they are unable to contribute 
 much in the way of deposits — but they are also very 
 isolated and very backward in knowledge of business. 
 Means of communication are few and everything is un-
 
 156 CO-OPERATIVE CREDIT 
 
 developed. Deposit money, however, there must be. 
 Under such circumstances clusters of local banks in 
 various districts have combined to form " central 
 banks," which give their collective liability as security 
 and thereby, as is found, readily attract deposits from 
 outside. The arrangement is not without its elements 
 of danger. K system of co-operative banking can only 
 be successful which makes every individual bank abso- 
 lute mistress of its own liability and makes it stand, 
 so to speak, upon its own bottom. All intermingling 
 and interlinking of responsibility involves danger. It 
 is quite possible that in India such central banks may 
 become masters, each in its own district keeping the 
 local banks wdth their liability dependent upon itself 
 and practically disposing of their liability without al- 
 lowing them a sufficient voice in the matter. Under 
 such circumstances their liability, upon which their 
 creditors rely, must needs become a questionable quan- 
 tity. Thus far however the arrangement appears to 
 have answered well and to have, indeed, served to 
 bridge over the threatening gulf of isolation. Not only 
 do the general public willingly deposit in such central 
 banks, but joint stock banks likewise readily open credit 
 accounts to them. 
 
 There can be no doubt that, properly organised and 
 properly handled, central banks are a convenience. 
 They may be counted upon to increase the strength of 
 each local bank joining them, they represent in them- 
 selves a very desirable help, and they are pretty sure, 
 administering the combined resources of the host which 
 they lead, in some respects with better knowledge, to
 
 CENTRAL INSTITUTIONS 157 
 
 discover new openings for the application of co-opera- 
 tive effort, as they have done in Germany. But they 
 are not indispensable. 
 
 Union, on the other hand, should be considered nec- 
 essary wherever banks have grown at all numerous. 
 You cannot well retain the character — and that means 
 the credit — and the uniform standard — which means 
 an equality in reputation — among a number of banks 
 without a Union. And propaganda can without it be 
 only desultory and ineffective. It will be well to keep 
 the several functions of the two types of central organi- 
 sation distinct. In early stages the central bank may 
 to some extent discharge the duties also properly per- 
 taining to the Union. But it will be best to assign to 
 each of them its own proper sphere.
 
 CHAPTER VI 
 
 CONTKOL AND AUDIT 
 
 CoNTKOL, as has been said, is the soul of co-opera- 
 tive banking. In co-operative banking you work with 
 so little capital and such amateur personnel and ma- 
 chinery, that in some way or other, — to make up for 
 such defects, — if you desire to keep your enterprise 
 safe, you have to safeguard it by other means. And 
 those " other means " spell control. If you study co- 
 operative banking in its most perfect specimens, you 
 will find that it is practically made up of control. It 
 is essential to make sure that all the wheels of the 
 simple machinery work aright, that every spring and 
 every cog should do its own particular duty. So there 
 is a Council to control the Committee of Man- 
 agement, and the General Meeting and the members 
 generally to control the Council; and there is some 
 higher authority with greater experience and greater 
 banking skill to control the bank collectivelv. The aim 
 pursued in all this is to close every crevice against pos- 
 sible abuse and to take every precaution against risk 
 and loss. 
 
 It ought not to need explaining that by such " con- 
 trol " — which in truth, under the division of labour 
 
 indicated — is in practice much less formidable than 
 
 158
 
 CONTROL AND AUDIT 159 
 
 it appears in the description — more is meant than 
 mere audit or the verification of figures. These things 
 are necessary, of course. And although, on the one 
 hand, the final passing of audit and the verification of 
 figures, to prevent any imposition upon the public, may 
 without objection be left to some outside public author- 
 ity, the work assigned to the Council of Supervision, 
 such as every co-operative bank ought to have, may well 
 at the same time embrace the function of audit. In 
 rural credit banks the Council may without danger be 
 left to carry out such audit itself, unskilled as its mem- 
 bers may in general be taken to be. The figures are 
 likely to be few and the transactions simple. However 
 in a bank with an active business — more especially if 
 such business be varied — the Council had much the 
 best appoint a skilled accountant to carry it out in its 
 place and under its authority. Co-operators have 
 rightly learnt to value skilled accountancy. The Brit- 
 ish " Stores " will now have none other, simple as store 
 bookkeeping is, and well trained as are in general those 
 who deal with it. In co-operative banking more than 
 thirty years ago Schulze-Delitzsch insisted upon it in 
 his own bank, threatening to resign his seat on the 
 Council if his request were not complied with. 
 
 Apart from this. Council of Supervision inspection 
 is not essentially a matter for a skilled accountant, be- 
 cause in it actuarial points do not come into account 
 to any large extent. Its object is to ascertain, in the 
 first place, whether all the provisions of the law, and 
 all the precepts issued by the society, have been faith- 
 fully observed; next, to check formal points of admin-
 
 160 CO-OPERATIVE CREDIT 
 
 istration, see whether all formalities required have 
 been complied with, whether sureties have in every 
 ease been communicated with and their signatures veri- 
 fied, whether the right emplojTnent has been given to 
 the loan, whether the rules with regard to repajTnent 
 have been observed and, in the last place, to examine 
 whether the Committee which deals out the loans has 
 rightly exercised the discretion left to it, not lent to 
 the wrong persons, or for questionable purposes, or be- 
 yond the figTire with which the borrower might be 
 trusted, as also whether it has properly dealt with sur- 
 plus funds by way of investment or deposit. These, 
 so it will be admitted, are important points, and if the 
 Council is to do full justice to them it will be under- 
 stood that it ought to be able to speak with sufficient 
 authority, for which reason both Schulze-Delitzsch and 
 Kaiffeisen recommended Councils composed of a larger 
 number of members than the Committees which they 
 are to control. It need not be added that, to be able 
 to carry out its duties satisfactorily, the Council will 
 want to have free access to all accounts, correspondence, 
 cash boxes, vouchers and whatever else there may be 
 belonging to the bank. It acts under this aspect as a 
 Commission of Inquiry on behalf of the members gen- 
 erally. Nor yet need it be explained that there is noth- 
 ing hostile or derogatory to the Committee in the 
 appointment of such a Council. The Committee will 
 want keeping under control. For it might take things 
 too easy. We see in sundry rural banks of Germany 
 that Committees, being given too free a hand, grant 
 annual cash credits rather than inquire into the object
 
 CONTROL AND AUDIT 161 
 
 of each loan, as their system requires that they should 
 do, and that they do this avowedly with the object of 
 .saving themselves trouble. But, on the other hand, 
 without a Council to uphold the rules of the bank 
 against great and small, without respect of persons, the 
 Committee might often feel tempted, under an appli- 
 cant's importunity or blandishments, to stretch a point 
 in his favour — it may be from pure good nature — to 
 the detriment of the bank. The present leader of the 
 Schulze-Delitzsch Union has more than once, when 
 things had gone wrong with a bank, and inquiry had 
 revealed the cause, found himself driven to declaim 
 against that " infatuated confidence " ( Vertrauens- 
 dusel), which has prompted risky credits. It will be 
 much easier for the Conamittee to say " No," when 
 there is a Council at its back to keep it in order. 
 
 That is all plain sailing enough. And although new 
 disciples of co-operative banking may boggle over it 
 when it comes to the appointment of a Council, it may 
 be taken that on the point of control all the expert 
 world is agreed. 
 
 However, there is something further desirable, if not 
 indeed positively wanted. It may be well to recall 
 once more to mind that in co-operative banking the 
 administrators that we have to deal with are for the 
 most part mere amateur bankers, little skilled in the 
 technical details of the business and without much ex- 
 perience. Their experience and knowledge may be 
 good so far as they go — indeed better adapted for the 
 particular business in hand than the wider-ranged skill 
 of trained bankers. But it will only go a certain way.
 
 162 CO-OPERATIVE CREDIT 
 
 And, be co-operative banking as simple as it pleases, 
 at one time or other questions of commercial banking 
 are sure to arise in it, which will want to be dealt with 
 on coEomercial lines. In the larger banks of the 
 Schulze-Delitzsch and Luzzatti types there will be 
 found among the Committeemen (vorstand) as able 
 bankers as are to be met with anywhere. But these 
 are just the men who, by reason of their office, want 
 to be controlled. And in the Councils there will be 
 for the most part only amateurs. 
 
 Therefore, ever since, as long ago as in 18T8, 
 Schulze — who throughout his life was the most re- 
 sourceful originator of new ideas in his special branch 
 of work — suggested a superior and more expert kind 
 of control to be carried out in every bank once in three 
 years — such as his union actually adopted as a com- 
 pulsory rule in 1881, to enforce it further in 1887 
 (while at the same time reducing the period from three 
 years to two). The most active minds among states- 
 men and bankers have since then readily espoused that 
 new proposition, which the German Parliament em- 
 bodied in its co-operative law as early as in 1889, when 
 passing a revised Co-operative Act, and the Austrian in 
 1903. There can be no doubt that Schulze's idea was 
 an excellent one and that its application has wrought 
 unspeakable good, making co-operative banking safer 
 — and to that extent cheaper — and raising co-opera- 
 tive banks which accept it to a higher and more uni- 
 form level. 
 
 Among rural banks, with their humble pretensions, 
 the same idea came to be generated and matured in a
 
 CONTROL AND AUDIT 163 
 
 different way. Eaiffeisen found — just as Indian 
 Registrars find in the present day and Irish organisers 
 in Ireland — that the little committees and councils 
 were in many cases not capable of keeping accounts 
 and exercising their other functions in the most correct 
 way. Such state of things really continues, in a mod- 
 erated shape, to the present day. And at the present 
 time there is, in the rural co-operative banking move- 
 ment in Germany, no more useful institution than that 
 which has, as I believe, my friend Privy Councillor 
 Havenstein of Bonn for its originator, namely, a spe- 
 cial department of his particular union (the Imperial 
 Union), which undertakes to draw up balance sheets 
 annually for rural credit banks — not as an enduring 
 service, but simply as a temporary help or schooling, 
 to teach Committees and Councils to do such work for 
 themselves. There is no supervision in this, merely 
 the putting of balance sheets into proper shape. Eaif- 
 feisen had, of course, on the same ground, the same 
 difficulty to contend with. Balance sheets were drawn 
 all awry. So he directed the balance sheets to be sent 
 up to headquarters every year, accompanied by an- 
 swers to stereotyped questions put by the central office, 
 to be there revised and set right. And out of such 
 material, often supplemented by additional question- 
 ings, the headquarters evolved correct bookkeeping. 
 This practice naturally led to further and further in- 
 quiry into facts, and of itself developed into inspection 
 carried out by a regular staff of travelling inspectors, 
 selected for their fitness, without prejudice to the send- 
 ing up, as of old, the balance sheets, which now pass
 
 164. CO-OPERATIVE CREDIT 
 
 through two examinations, first at the centre of the sec- 
 tion, and after that at the headquarters of all, so that 
 certainly no labour is spared in the matter. What we 
 are, however, here specifically concerned with is, not 
 the preparation of balance sheets, valuable help as it is, 
 but the inspection of the bank's doings by the travelling 
 inspector, who reports up to headquarters. 
 
 M. Luzzatti took up the idea of general inspection, 
 in Italy, on Schulze's lines, at once, when he was made 
 aware of it, in 1888, and again in 1895. The large 
 Italian People's Banks, however, apprehending inter- 
 ference, resisted the proposal, just as they — really as 
 a matter of trade-greed — resisted the same leader's 
 proposal to create a central bank. The Italian Gov- 
 ernment is, however, now busy with a scheme for in- 
 troducing inspection, shaped generally on the model of 
 that in force in Germany, and making it compulsory. 
 And there can be no doubt that other Governments will 
 follow its example. 
 
 In truth, the idea of obligatory inspection by a 
 higher authority is now everywhere approved. The 
 difficulty is, in the absence of sufficient knowledge of 
 the excellent results obtained in Germany, to get people 
 to agree respecting the shape which such inspection is 
 to take. Government men, as a matter of course, 
 everywhere claim the office as a matter of right for 
 men of their cloth, whom they suppose to be endowed 
 with a monopoly of fitness. Only in England the 
 Board of Agriculture, conscious possibly of its own in- 
 sufficiency, pleads for inspection by bankers. The 
 requisite audit is in the United Kingdom of course
 
 CONTROL AND AUDIT 165 
 
 prescribed by the two Acts which severally govern the 
 matter. But, iu its endeavour to promote the forma- 
 tion of " agricultural banks," the said Board has ob- 
 tained a promise from a number of joint stock banks — 
 which are also willing to open credits and to receive 
 deposits — to send skilled managers of theirs, gratui- 
 tously, as a public service, to inspect rural banks and 
 advise their managers. Now these banks might as well 
 send artillery officers to instruct riflemen in rifle prac- 
 tice, or a cinque cento architect to advise a country 
 carpenter how to set up a pigstye. The two classes of 
 banking are essentially different and call for wholly dif- 
 ferent practice and precautions. So essentially differ- 
 ent are joint stock business and co-operative business, 
 that in the United Kingdom, where Co-operation took 
 its first start on a large scale, Parliament has expressly 
 sanctioned the entrusting even of ordinary audit in co- 
 operative societies to a distinct class of accountants, 
 skilled and passed as accountants, but having made a 
 specialty of co-operative business. If that is so in 
 mere accountancy, how much more is it bound to be the 
 case in the matter of inspection for the general conduct 
 of this particular business. The bankers volunteering 
 advice might conceivably give such to a central bank, 
 which meets with them on common ground and has, as 
 part of its duties, the same class of business to deal 
 with. In a local bank their " high finance " expert 
 knowledge must be thrown away. Co-operation will 
 have to train its own advisers and inspectors, as it does, 
 systematically and with good results, in Germany. In 
 that country there are special courses of training in-
 
 166 CO-OPERATIVE CREDIT 
 
 stituted for co-operative inspectors, with examinations 
 and certificates of fitness at the end. 
 
 Practically the same proposition is favoured in a 
 modified shape in some other quarters. What is there 
 asked for is that central banks should be charged with 
 the office of inspection — and, what grows out of this, 
 of expertly advising — local banks. That is much 
 advocated in India, where there are some " central 
 banks," but as yet no " unions," so that there is no one 
 to entrust with inspection except the ofiicial Eegistrars, 
 who are finding the burden growing too heavy for their 
 limited powers — unless it be taken charge of by cen- 
 tral banks. And such is the course actually practised 
 in Roumania where, under a faulty, Government-rid- 
 den system, the central bank is the real moving organ 
 in what " co-operative " banking there is — not a little 
 of it, but that rather of the distributing than the up- 
 building order. Now under such arrangement we do 
 not even make sure that we shall have really good 
 expert banking knowledge to assist us in the work. 
 For the central bank inspectors may be as mere ama- 
 teur bankers as are the local bank managers. There is 
 likely, on the other hand, to be among them some 
 knowledge of co-operation, which joint stock bankers 
 cannot be expected to possess. But the interest en- 
 listed will naturally be that of the creditor, or potential 
 creditor, not that of the disinterested well-wisher to the 
 bank or the interested shareholder or depositor. So 
 far as the central bank makes advances, it has as a 
 matter of course a creditor's right to examine accounts 
 and whatever else might affect its position, in order to
 
 CONTROL AND AUDIT 167 
 
 ascertain whether its eventual claim is absolutely safe- 
 guarded. That may be settled between it and its bor- 
 rower as a simple matter of contract. Its officers may, 
 beyond that, give paternal advice — and in the absence 
 of other inspection it is quite right that their willing- 
 ness to do this should be utilised. But the impelling 
 motive which ensures really good inspection, the full 
 identity of interest, will still be wanting. In the 
 recent inquiry into German bank crashes it was found 
 that it was an officer of the central bank who, out of 
 solicitude for his own institution, had egged on local 
 banks to their ruin assuring them that the (already in- 
 solvent) central bank was good for all its liabilities. 
 And one does not see what power either the central bank 
 inspector or the joint stock bank inspector could exer- 
 cise to make his monitions obeyed. He may advise, 
 but he cannot enforce. His only possible threat will 
 be that of withholding further advances. 
 
 The worst method of all is that of entrusting inspec- 
 tion to the Government, by means of inspectors to be 
 appointed by it. There is a great belief in this, not- 
 withstanding, in some quarters. The prospect of 
 cheapness, which Governments know how to make play 
 with, has something to do with this. But, apart from 
 that, what inspection — so it is asked — could possibly 
 be more thorough and searching, and also more skilled 
 and effective than that carried out under the authority 
 of the Government of the country with its inexhausti- 
 ble resources of compulsion ? Such opinion is much 
 favoured by political authorities on the European Con- 
 tinent, but fortunately only little practised because the
 
 168 CO-OPERATIVE CREDIT 
 
 Governments, coming later into the field than voluntary- 
 organisations, have not found convenient means of dis- 
 possessing the latter, who were already in possession. 
 All that they have practically been able to achieve — 
 except in such countries as Eussia, Roumania and the 
 like — has been, quite consistently with their imposi- 
 tion of compulsory inspection, to offer the services of 
 Government inspectors as an alternative to union in- 
 spection, a last resource in the event of the failure 
 of others. However, evidently they desire their own 
 method to be given the preference, because they have 
 — once more at the general taxpayer's expense — fixed 
 only nominal charges for its execution. At the outset 
 the charge for inspection, such as a union can offer 
 only on self-supporting lines, weighs rather heavily on 
 small banks' resources. In Ireland, to state one in- 
 stance, it is felt as a hindrance — and that is one rea- 
 son why Irish rural co-operators, operating under 
 peculiar circumstances — in backward country sec- 
 tions, where population is sparse and poor — wish to be 
 allowed to couple trading, which is known to be re- 
 munerative, with petty banking, so as to have a margin 
 of income available. On the face of it, however, it 
 must be apparent that inspection by Government of- 
 ficers is of no value whatever — in M. Luzzatti's words, 
 spoken at a great Italian Congress, " worse than no 
 inspection at all." The Government has every facility 
 for ascertaining established facts and compelling com- 
 pliance with formal, positive precepts. It can go no 
 further. It can send its inspectors to inspect factories, 
 mines, schools, prisons, and punish defaulters by fines
 
 CONTROL AND AUDIT 169 
 
 or, it may be, by withdrawal of licenses. It can, in 
 co-operative banks, compel and carry out an effective 
 audit and verification of accounts. And to all this it 
 is entirely welcome. Admettoris le controle, repoussons 
 rintrusioTij so says in this connection M. Eugene Kos- 
 tand, for a long time the leader of the free co-operative 
 credit movement in France. But it cannot penetrate 
 into the particulars of a business — more particularly 
 of a business so absolutely dependent upon individual 
 title and changing circumstances as credit banking. 
 The Government inspector might truthfully report 
 evervthing to be accordinai; to rule — so far as his in- 
 structions go — in a credit society which was never- 
 theless on the brink of insolvency. 
 
 These things are not to be settled by rule of thumb. 
 And one point, which advocates of Government inspec- 
 tion fail to bear in mind, is that Government inspection 
 purporting to amount to a guarantee — that is the 
 ground upon which it is recommended — implies as a 
 necessary corollary Government liability for default. 
 This is no chimera. There have actually been cases in 
 which the question of liability was raised at law. The 
 Union, against which the claim was raised, came off 
 scot free, because it had given no guarantee; it had 
 only to the best of its power supplied a skilled inspec- 
 tor. A Government would not have escaped so easily. 
 
 But what is really worse is that a Government in- 
 spector would have neither the requisite qualification 
 and interest to make his inspection useful, nor would 
 he or his superiors have the means for enforcing re- 
 medial action where such might be judged necessary.
 
 170 CO-OPERATIVE CREDIT 
 
 What is he to do in case of non-compliance with his 
 behests ? He may fine the bank — which will impov- 
 erish and may ruin it. Or he may have its registra- 
 tion cancelled — which will leave the district without 
 a bank. He is not likely to possess the necessary quali- 
 fications because, co-operative banking being a practi- 
 cal matter, expertness in it can be acquired only by 
 practical training, handling of bank money and dealing 
 with cases. And without the expertness of a practical 
 man, what is inspection worth ? German unions ex- 
 plicitly bind themselves only to employ thoroughly 
 skilled and fully competent inspectors. And a Gov- 
 ernment inspector cannot possess the requisite interest, 
 because the fate of any of the banks does not matter to 
 him a red cent. He goes there to do his duty — by 
 rote. He goes through his prescribed programme of 
 inquiry and he goes away again. If the bank comes 
 to grief — what does that matter to him ? He will 
 have done his part; he will still remain Government 
 inspector and be not one penny the worse. His in- 
 spection is likely to become either a mere form per- 
 functorily gone through, which can do the bank no 
 good, rather harm; or else an exercise of arbitrary 
 power, which will irritate the members, and dispose 
 them all the less to comply with his recommendations. 
 They cannot indeed under any circumstances repose 
 real confidence in him. A trusted parent can do more 
 with a child than the best armed and most resourceful 
 policeman in the world. 
 
 The proper authority to carry out inspection in a 
 co-operative bank is without question a union of co-
 
 CONTROL AND AUDIT 171 
 
 operative banks of the same order. Such union can 
 make sure that it will have competent officers to do the 
 work under responsibility to itself, who appoints them, 
 that is, to experienced experts. Such inspector need 
 not stand upon etiquette with the local banks. He can 
 put inconvenient questions and examine minutely w'ith- 
 out giving reasonable umbrage. The Union's interest 
 is one only, and that is, to keep its own banks fully 
 up to the mark, to safeguard members and creditors 
 against loss. Itself would be prejudiced if any of 
 them were to fall below or be ruined by mismanage- 
 ment. And what in this matter is the Union's interest 
 is also the bank's own interest. Therefore the Union 
 need not in any way be squeamish about questioning 
 its member-banks. The interrogatories actually put to 
 such in Germany would astonish American readers. 
 They are so minute. They go into every detail. The 
 Germans are adept schedule makers. And here, in 
 their schedule of questions, is the result of more than 
 forty-five years of careful inquiry! Every possible 
 danger point is taken into consideration. The Union 
 is also not sparing in its disciplinary methods. Its of- 
 ficers make their examination in the bank's own inter- 
 est, with professional skill and experience as well as 
 with authority at their back. Their inquiry is search- 
 ing. It is carried out according to rule in the presence 
 of the governing bodies of the bank, or of their repre- 
 sentatives. Its result is embodied in a report and read 
 out to those bodies or to members generally. That re- 
 port also goes to the District Union and to the general 
 Union, where as a rule it is kept private. However, if
 
 172 CO-OPERATIVE CREDIT 
 
 there should be faults really imperilling the bank, the 
 report may be discussed in the common interest at the 
 District or the General Congress. In extreme cases 
 the bank may be turned out of the Union. If to have 
 its shortcomings publicly discussed is not pleasant, to 
 be expelled may seriously damage its position. In 
 spite of all this, not only is membership in a Union 
 felt as a gain, but the Union inspector is welcomed in 
 the banks. The members of such know that he is doing 
 them a real service, that there is an object in all the 
 interrogatories put to them, all the inquiries made into 
 their business. He comes as a friend and as a skilled 
 teacher. He is under instructions to assist them — at 
 the inspection and otherwise, say, by addresses — with 
 his advice. If he should find fault, he explains his 
 Why and Wherefore for doing so and argues the case 
 understandingly with the members. 
 
 There can be no question that inspection by the 
 Union is a real benefit to a bank ; and in Europe power 
 to institute it is reckoned a privilege under the law. 
 It is — quite rightly — conceded only to Unions which 
 have given proof of their worthiness of it and made 
 good their position. To state one instance, the Union 
 of Polish co-operative banks in the eastern provinces 
 of Prussia, under a benign Minister not obsessed for 
 the moment with Antipolonism, obtained that right 
 with good cause. They value it and employ it well. 
 Therefore it could not decently be withdra\vTi, as many 
 antipolonist politicians would wish. There are in 
 truth no better conducted co-operative banks on the 
 European Continent.
 
 CONTROL AND AUDIT 173 
 
 However, the law, in spite of the proved utility of 
 Union inspection, very properly makes provision also 
 for the case of banks which do not provide for it. 
 Such banks — there are some, and quite good ones 
 among them, which do not belong to any union, nor 
 even to an " inspection union " (Revisionsverband) 
 such as are here and there formed for inspection only 
 — come under the same rule of compulsion; but no 
 union inspector being available in their case, they have 
 to submit to inspection by a Government officer ap- 
 pointed by the law court of their district. They do not 
 like it; and it is to be feared that they are not much 
 the better for it. 
 
 A law similar to the German, making inspection 
 compulsory but permitting inspection by recognized 
 unions, and placing inspection by Government officers 
 only in reserve (in respect of societies which have no 
 union), is, so I have reason to believe, in preparation 
 for Italy. And in my opinion there can be no better 
 solution of the question. 
 
 This subject cannot well be finally dismissed without 
 just a few words upon the nature of the inspection here 
 recommended. 
 
 That inspection, so it may be explained, was never 
 intended to replace checking by the local Council of 
 Supervision, which appears so unnecessary to not a few 
 novices, but only to supplement and, where necessary, 
 to enforce it by order of the higher authority. To un- 
 dertake such local inquiry the inspectors of the Union 
 obviously would not be the proper persons. For that 
 is a question of knowledge of the local people, of their
 
 174. CO-OPERATIVE CREDIT 
 
 character and their circumstances. Has " Brown " 
 been trusted to excess ? Is " Jones's " the right case ? 
 And so on. The Union inspector, coming from a dis- 
 tance, could never answer these questions. Council 
 control must always and under all circumstances re- 
 main the pillar of safeguards in co-operative banking. 
 However, the Union inspector is acquainted with 
 things of great importance, upon which members of 
 the Council are not, or else at any rate are often enough 
 not sufficiently, informed. He has passed through ap- 
 propriate schooling, he has been examined and found 
 eligible; doing nothing but inspecting all the year 
 round he has been brought in touch with many scores 
 — through his consultations with his colleagues, at 
 their regular meetings, with thousands — of co-opera- 
 tive bankers and by his inspections and inquiries he 
 has become acquainted with very varied experiences; 
 he is informed upon every point which is likely to 
 arise in co-operative banking; at the same time he is 
 kept in touch with larger banking; he has all the points 
 of pertinent law and of co-operative banking at his 
 fingers' ends. Although he does not know about 
 '' Jones " and " Brown," he is full of banking knowl- 
 edge. He knows what a bank must do to keep its 
 resources sufficiently liquid — a point to which very 
 properly steadily gi'owing importance is attached ; he 
 knows how much borrowed money a bank may, under 
 varying conditions, take up in proportion to the capital 
 of its own ; he knows all the legal precepts to be ob- 
 served ; he has a keen eye for any irregularities from 
 a banking point of view. And his interest is, as al-
 
 CONTROL AND AUDIT 175 
 
 ready observed, identical with that of the bank in- 
 spected. His union, which pays him, and to which he 
 is answerable, is made up of local banks. Its foremost 
 interest is that those banks should be thoroughly safe 
 and merit as well as command a high reputation. 
 Therefore he will do all in his power to keep them up 
 to the mark. And, generally speaking, their members 
 and Committees are thankful for his advice and show 
 themselves anxious to benefit by it. 
 
 Here is the coping stone to that structure of control 
 and checking which constitutes the framework of the 
 co-operative credit fabric. Step by step inspection 
 rises, from point to point — from purely local and per- 
 sonal considerations to the highest questions of techni- 
 cal banking practice which occur in it. And in the 
 varied applications of inspection, in such proving of 
 all points, lies the safety of the bank. That is the ef- 
 fective substitute which Co-operation can provide for 
 the lacking funds and banking skill of those who, on 
 the lowest plane, administer the banking organisations. 
 It has given ample proof of its value; and it cannot 
 be contended that it is not applicable everywhere.
 
 CHAPTER VII 
 
 VAKIANTS AND DANGERPOINTS 
 
 It was scarcely to be expected that a movement so 
 largely dependent upon local conditions, habits and 
 temperaments as is that for the dispensing of co-op- 
 erative credit should long continue in its wider appli- 
 cation on the same narrow lines that were prescribed 
 by its first originators. Neither was it to be desired. 
 In matters of economics principle is immutable. 
 Credit, wherever practised, must be based upon secur- 
 ity. However, principle will, according to varying 
 environments, accommodate itself to a variety of 
 shapes. And, if you would cover much ground, you 
 will needs have to apply it in such way as to make it 
 suit a variety of different cases. Circumstances differ 
 in various countries, not rarely very considerably even 
 in the very same country. Habits differ. The Ger- 
 mans and Austrians take a pride in their practice of 
 unlimited liability, which the Italians hold in abhor- 
 rence and judged to be the very first thing that had to 
 be got rid of. Human character and human prefer- 
 ences differ. Laws differ. 
 
 iSText, in this imperfect world of ours, it is impossi- 
 ble to devise any one scheme which is not — it may 
 be by reason of its very excellence — liable to abuse. 
 
 Carry its leading feature, which is its glory, to excess, 
 
 176
 
 VARIANTS AND DANGERPOINTS 177 
 
 and you have a caricature. Businesslike organisation 
 may result in profit-seeking commercialism and the 
 selfish domination of capital. Philanthropic idealism, 
 on the other hand, may destroy businesslike equilib- 
 rium, or else concentrate power in one or a very few 
 hands. The former result would make the scheme un- 
 workable, the latter would wholly spoil its character. 
 There is nothing surprising in the fact that the danger 
 of such denaturations should have forced itself upon 
 the attention of men endowed with critical minds and 
 that such men should have made it their aim to 
 counteract the dangerous tendencies and guard against 
 deterioration by additional safegiTards. ]S[otliing could 
 be better than if they should succeed. However, while 
 the world remains the world, the chances are that the 
 studied avoidance of one rock will only land the vessel 
 upon another, possibly more dangerous. 
 
 In the last place, there are the powers that be to be 
 reckoned with, no matter whether they handle the 
 sceptre or the censer, whether they preside over broad 
 acres or deck their head with the Phrygian cap. The 
 better a thing succeeds, the more persons will it attract 
 within its influence, whose support may be coveted for 
 other purposes than that directly contemplated and 
 whom it is accordingly policy to bribe with benefits. 
 
 The last-named factor making for degeneration one 
 would wish to see altogether eliminated from the bal- 
 ancing play of forces. Politics and denominational 
 strife have no proper place in Co-operation and can 
 only serve to denaturate it. They have, nevertheless, 
 proved in fact very powerful agents.
 
 178 CO-OPERATIVE CREDIT 
 
 As between the two systems reviewed, Change has 
 proved by far the most active on the Eaiffeisen side, as 
 is perfectly natural, as we shall see. The system hav- 
 ing Schulze-Delitzsch and M. Luzzatti for its protago- 
 nists has suffered very much less. And for good 
 reasons. There is a oneness about it which makes it 
 self-contained and self-explanatory. It is all econom- 
 ics. It has no other aims which affect it. And, there- 
 fore, barring deliberate corruption, it is bound to 
 remain essentially unchanged. Xot even Russian of- 
 ficialism, operating with its big purse and its large 
 army of submissive public officers, has succeeded in 
 damaging it more than by putting it into Government 
 garb and forcing some public money upon it. Look 
 where you will — in the German and Austrian Kredit- 
 vereine, in the Italian banche popolart, in the Swiss 
 Schweizerische YolhshanTc, in the struggling French 
 hanques populaires, even in Lutfi Bey's few banks 
 newly established on the banks of the Kile, you see 
 still everywhere essentially the same system. The non- 
 German throwing off unlimited liability has not altered 
 the character of the institution. The worst damage 
 done to it from without is that for which it has to thank 
 the Prussian Government and its imitative sister Gov- 
 ernments in Germany, namely, the organisation of it 
 in detached compartments for distinct trades, each by 
 itself, which runs directly counter to common sense and 
 was bound to lead to unsratisfactorv results. Dr. 
 Hugenberg, who for a long time was at the head of 
 the Government department dealing with these par- 
 ticular matters, has, in a book recently published, re-
 
 VARIANTS AND DANGERPOINTS 179 
 
 vealed the motive for this.^ It was political. All 
 these sixty-five years has the Goverument at Berlin 
 steadily obstructed the progress of Schulze-Delitzsch's 
 Co-operation, simply because it teaches self-reliance 
 and independence, rejecting the Government's bounty. 
 This was considered heresy. Also Schulze and his 
 friends were for the most part Liberals and partisans 
 of German unity, at a time when that was deemed 
 heresy in Berlin. Accordingly they were tabooed, and 
 when it came to passing the first German Co-operative 
 Act, Schulze, the one genuine co-operator in Parlia- 
 ment, was deliberately excluded from the Committee 
 entrusted with its elaboration. Nevertheless he suc- 
 ceeded brilliantly in his work. Then, as Dr. Hugen- 
 berg has put it, " to get the tradesmen " — the class for 
 which Schulze had more particularly devised his 
 scheme, " away from Liberalism," the Government — 
 always eager for " votes " — took to favouring " Trade 
 Credit Societies " — credit societies, that is, in which 
 membership is in each case confined to one trade only. 
 That necessarily did away with all the wholesome 
 " balancing " between abundance and want. But ob- 
 viously societies so formed must needs remain depend- 
 ent upon the institution which nourishes them with 
 cash, that is, in this case, the Government. And that 
 was just what was desired. The Hungarian Govern- 
 ment, when deciding to take the trading classes under 
 its wing, acted far more circumspectly; for, although 
 favouring single-trade societies for all purposes except 
 
 1 " Bank-und Kreditwirtschaft des deutschen Mittelstandes, 
 von Dr. A. Hugenberg, Geheimer Finanzrat. Munich, Lehman. 
 1906."
 
 180 CO-OPERATIVE CREDIT 
 
 that of credit, which is quite right — it with equal pro- 
 priety particularly recommended the blending of trades 
 in one society for purposes of credit. The result has, 
 as observed, in Germany proved anything but satisfac- 
 tory. The societies have declared themselves not at all 
 content with the assistance rendered to them by the 
 State, nor with the clumsy methods forced upon them 
 for using it — which methods were, in part, borrowed 
 from the official credit apparatus contrived for farmers. 
 One or two trades — most notably butchers and bakers 
 — have reaped some benefit ; but that is rather because 
 by such means the cheque and clearing have become 
 available for them, than because of any credit allowed. 
 Otherwise things have not gone well, and Herr Mager, 
 a responsible officer of the very bank which dispenses 
 State credits, has publicly expressed his preference for 
 independent banking. Dr. Hugenberg himself has, 
 likewise publicly, owned to the opinion that the " Trade 
 Credit Societies " would do better were they now to 
 seek admission to the Schulze-Delitzsch Union. 
 
 Thus, in general, on its own side Schulze-Delitzsch's 
 system remains outwardly intact. All the same it has 
 not altogether escaped abuse though retaining its orig- 
 inal form. Experience has made it clear that the com- 
 mercial spirit inspiring it may be carried too far. 
 The most serious dangerpoints about it are the non- 
 limitation of dividend on shares and a desire to do 
 " business." As business has increased — beyond any- 
 thing that could have been foreseen — dividends have 
 grown fat and " dividend hunting " has become a not 
 yncommon practice — in Italy as in Germany. What
 
 VARIANTS AND DANGERPOINTS 181 
 
 wonder that in some cases — notable cases among them 
 — professing " co-operators " have turned themselves 
 into profit-seeking capitalists and their co-operative so- 
 cieties into — essentially or else quite outspokenly — 
 joint stock concerns ! Also, in the chase for " busi- 
 ness," unreasonably large credits have been opened to 
 members — generally to members of the governing bod- 
 ies. Or else the cheap credit of the co-operative bank 
 has been taken unfair advantage of by moneylenders, 
 for obtaining from them cheap money wherevt^ith to 
 carry on on a larger scale their usurious trade. That 
 is not likely to occur in the present day, either in Ger- 
 many or in Italy. For, if dividend has not been lim- 
 ited by rule, it has become so generally in practice; 
 also excessive credits are now eyed with suspicion, and 
 there will be few, if any, money lenders found in the 
 ranks of banking co-operators. But the moneylending 
 business is believed to be still going on merrily in 
 Galicia and possibly in Hungary — in both countries 
 only in the professing Schulze-Delitzsch banks. 
 
 Such dangers may very well be guarded against by 
 careful inspection and by limitation of dividend on 
 shares — to which may be added the distinctly co-op- 
 erative practice of allowing dividend on business — as 
 in Stores — of which the meritorious veteran of co-op- 
 erative banking in Belgium, M. Alfred Micha, has 
 made himself the advocate, and which has already come 
 to be practised in several co-operative banks in Italy. 
 
 All such progress notwithstanding, one cannot pre- 
 tend that danger of abuse for selfish purposes has 
 passed wholly away, or that it is peculiar only to conti-
 
 182 CO-OPERATIVE CREDIT 
 
 nental countries. The devil of covetousness is as active 
 in the Anglo-Saxon soul as in any foreign one. In 
 England I have had more than one appeal addressed 
 to me to organise banks for people who were interested 
 in the sale of goods. The Credit obtainable at one 
 counter was to tempt borrowers to buy goods with bor- 
 rowed money at the other. Now this would have been 
 the grossest perversion of Co-operation. But who 
 knows whether similar proposals may not be put for- 
 ward in the land of " the almighty dollar " ? 
 
 The Eaiffeisen system has had a good deal more to 
 suflFer from innovations and supposed " improvements.'' 
 The reasons for this are not far to seek. To begin 
 with, the whole structure of the Eaiffeisen society is 
 of a nature, one might say to tempt to proposals for 
 supposed emendation. Simple as simple can be under 
 one aspect, under another the system is distinctly com- 
 plex. Its aim and object is not purely economic, like 
 Schulze's. Economics provide for it an instrument 
 which is to be put to right good use. But its principal 
 aim is moral and social upraising. Accordingly more 
 principles and influences come into play than in 
 Schulze's simple thrift and credit institution, such as 
 give to people with " ideas " more handles to take hold 
 of when seeking to adapt it to their own taste and 
 interest. The philanthropist may wish to alter the 
 system a little here, the pure economist a little there. 
 And the self-seeker can, if he chooses, make great play 
 with Raiffeisen's moral aims, which mav be twisted 
 into a pretext for all manner of cranky aberrations. 
 Simple structure as regards liability, and excellent re-
 
 VARIANTS AND DANGERPOINTS 183 
 
 suits as regards provision of money and raising of 
 moral tone, have made it a pronounced favourite alike 
 with high and low, with governors and governed. And 
 the more popular a movement is, the more is its label 
 sure to be made use of for the covering of contraband 
 goods which are not, but may be made to appear, its 
 own. People and authorities who require votes or in- 
 fluence — Church, political parties, territorial mag- 
 nates — are not likely to pass by so tempting a weapon 
 for their own several peculiar warfare. There is so 
 much for which this system may be taken advantage 
 of! Designed for the poor, as an unobtrusive, quiet 
 instrument of improvement, it lends itself capitally to 
 the country magnate's ambition for prestige and power, 
 and also to his more egotistical craving for material 
 gain by being turned into a weapon for " agrarian " 
 warfare. To political parties, more particularly on 
 the Conservative side, it offers an easy hold upon a 
 docile and leadable population with votes. And to 
 Church politics it presents itself as a chosen ally, since 
 it in any case pursues similar aims and holds altar and 
 cassock in honour. 
 
 As it happens, it is easy to bend into an altered 
 shape to serve one-sided purposes. The procuring of 
 credit without providing share capital, or only very 
 little, is of course a powerful magnet. On the other 
 hand, the conditions which such benefit necessarily im- 
 poses, the searching inquiry, the strict holding of the 
 borrower to account, and so on, do not go down as read- 
 ily. Here, then, there is a golden opportunity for the 
 intending operator to seize upon, offering to boil the
 
 184 CO-OPERATIVE CREDIT 
 
 peas on which the pardon-seeking pilgrim is to walk; 
 in other words, to lighten the conditions while still 
 promising the same benefit. However, thus far there 
 has not been much success to record in these attempts 
 to square the troublesome circle. For the weight taken 
 off the burden has only added new dangers instead of 
 removing old ones. 
 
 There are societies, of course, and also entire unions, 
 which have accepted Raiffeisen's teaching in its purity 
 — or its purity barring small points of detail. There 
 are such in Germany, some unattached to unions, others 
 forming smaller national unions of their owm in their 
 particular state, to preserve their distinctive Bavarian 
 or Wurttemberg nationality. And in Austria — more 
 notably in Bohemia — I have come across societies 
 which remain quite true to their original apostle, al- 
 though attached to Unions which favour adaptations. 
 The societies in Transylvania and in Serbia, and those 
 formed severally among the Serbians and Croatians of 
 Hungary, are also pure, so far as one can see. And 
 so are the caisses rurales et ouvrieres formed by M. 
 Louis Durand in France — generally, however, with a 
 strong leaning to the Church of Eome. However, in 
 Protestant districts like the Cevennes there are also 
 Protestant societies. But all indifferently place moral 
 and religious aims before economic. The " Agi'icul- 
 tural Banks " of Ireland may also rank as true copies 
 of the Neuwied pattern. Dr. Wollemborg's " neutral " 
 casse rurali in Italy are very facsimiles of German 
 Eaiffeisen societies — with this difference only that 
 they accept the promissory note, which in German so-
 
 VARIANTS AND DANGERPOINTS 185 
 
 cieties is held in abhorrence and therefore excluded, as 
 the common record of a loan. Such note is well under- 
 stood in Italy. Others besides M. Durand in France 
 have tried to acclimatise the genuine Eaiffeisen system, 
 proposing to arrive at it on a rather roundabout way, 
 which has unfortunately not yet reached its intended 
 goal. 
 
 Apart from these instances, the Eaiffeisen system is 
 represented by adaptations, which only partially reflect 
 the teaching of the original. 
 
 Barring cranks and people bent upon trying to com- 
 bine irreconcilables, it is the three forces already indi- 
 Gated which have fastened upon the Eaiffeisen system 
 as a prey to be exploited, to whom we owe those various 
 adaptations which have given Eaiffeisenism a new face. 
 They have acted energetically, ingeniously, sometimes 
 each by itself, sometimes two or three in alliance. 
 Thus, although in France and Italy, State and Church 
 are in pronounced antagonism, elsewhere the two fre- 
 quently enough readily join forces. On the other hand 
 gi-eat landlords and the State are mostly declared 
 friends, and gladly hunt in couples. Such alliance 
 often shows itself as harmless — as for instance in Bul- 
 garia, where, to suit the primitive habits of the peas- 
 antry, co-operative credit is put into the shape of a 
 friendly society with continuing periodical pajTuents 
 from members in the place of shares. However in not 
 a small proportion of the adaptations effected the in- 
 fluence of the larger landlords, working for their own 
 advantage, and seeking for patronising domination over 
 the smaller peasantry, is pretty clearly to be detected.
 
 186 CO-OPERATIVE CREDIT 
 
 To run the gamut of alterations effected, the curious 
 attempt to devise a form of Raiffeisenism with limited 
 liability only may be regarded as devoid of political 
 object, save that it is held to facilitate territorial mag- 
 nates' patronising membership, which tells in the direc- 
 tion of politics, and which should, even on that ground, 
 be anathema. Magnates would wish to stand at the 
 head of any agi'icultural or rural movement started, so 
 as to be able to keep it in leash ; but on the other hand 
 they want things made easy for themselves, and not to 
 venture overmuch. That desire has been given effect 
 to in two provinces of Prussia, with the aid of income 
 tax rolls obligingly placed at the disposal of the givers 
 of credit by authorities, for ascertaining the financial 
 " value " of applicants, and in Hungary with the aid of 
 a central bank endowed by the Crown and magnates. 
 'No regular follower of Raiffeisen would for a moment 
 recognise societies so formed as true Raiffeisen socie- 
 ties — Raiffeisen's successor in the leadership of the 
 Union, Herr Cremer, wrote to me emphatically more 
 than twenty years ago in answer to my complaint about 
 difficulty in obtaining authority for introducing un- 
 limited liability in England : " Without unlimited lia- 
 bility you can form no Raiffeisen society." 
 
 The most noteworthy adaptation to be mentioned is 
 that which Dr. von Langsdorff, Herr Miirklin and Dr. 
 Haas devised about 1880 in Germany and which has 
 in its practical application become identified more par- 
 ticularly with the last named gentleman, recently dead, 
 who, with the eye of a firstrate organiser, quickly de- 
 tected at what points the system might be made more
 
 VARIANTS AND DANGERPOINTS 187 
 
 palatable to the people whom lie desired to influence. 
 Altruism is a very good thing in theory; but egotism 
 is more attractive. Once more, religion and moral 
 raising are firstrate objects in the abstract; but ringing 
 cash in the pocket is far more magnetic. It is not sur- 
 prising also that Eaiffeisen's rather self-willed bearing 
 and austere adherence to principle should have given 
 umbrage to earnest fellow workers with " ideas," many 
 of which " ideas " are good in themselves. That caused 
 jarring in the machinery. Moreover the principle of 
 centralisation, which Raiflfeisen insisted upon as in- 
 dispensable is decidedly open to argument. Decentra- 
 lisation, turning the absolute monarchy into a cluster 
 of self-governing republics, gives far more chance to in- 
 dividual talent and the arousing of a healthy rivalry 
 and emulation in the putting forward of new ideas. 
 On such lines the secedents from Eaiffeisen organised 
 their own new union, throwing " religion " overboard 
 as a point in the progTamme unsuited for their purpose 
 and turning the Union into an organisation in which 
 the large landowners lead and devise the policy, which 
 is distinctively of an "agrarian " character — that is, 
 pursuing material advantages solely for the agricultural 
 interest, such as German Governments, regarding land- 
 lords and the docile peasantry as their peculiar body- 
 guard, are not unwilling to agree to, even though the 
 favours shown should have to be dispensed at the cost 
 of other interests. Add to that very pronounced ag- 
 gressive patriotism which consigns " John Bull and the 
 Frenchman " — in desire only, but in desire with a ver- 
 itable vengeance — to the realm of darkness, and adu-
 
 188 CO-OPERATIVE CREDIT 
 
 lates "William of Hohenzollern," and you have a pro- 
 gramme which, under Government patronage, marked 
 by a shower of "decorations," conferment of titles, 
 princely presidencies and all kinds of distinctions, is 
 bound to " go." To get more wind into its sails, the 
 new school broke away ostentatiously from RaiSeisen's 
 preference for the absence of shares and secured 
 Schulze's, at that time powerful, countenance and al- 
 liance by declaring in favour of " substantial " shares 
 — which in practice however, notwithstanding this pa- 
 per declaration, have on an average not been raised 
 very much above the figure sanctioned by Eaiifeisen, 
 although in some provinces, where things go well 
 altogether, due effect has undoubtedly been given to 
 the new dogma. The reason why this has not been 
 done more generally is, that it has been found difficult 
 to compete with substantial shares against Eaiffeisen 
 banks with merely nominal shares and doing equally 
 well. The curtailment of sacrifice on entering is a very 
 telling bait. 
 
 On these lines, as a purely economic and distinctly 
 agrarian movement, the " Imperial Union," as it is 
 now rather ambitiously styled, has, with the help of 
 firstrate men, covered Germany with societies and ac- 
 complished a great deal. It basks of course in Govern- 
 ment favour, which in itself helps it forward. How- 
 ever the acceptance of State assistance was, like Eve's 
 bite into the apple, an afterthought prompted by temp- 
 tation. In 1881, at the annual congress of the Schulze- 
 Delitzsch societies, whose support he earnestly sought, 
 Dr. Haas still proclaimed emphatically : " We take our
 
 VARIANTS AND DANGERPOINTS 189 
 
 stand upon the principle of self-help and will have noth- 
 ing to do with State-help." That piecrust promise has 
 long since been forgotten, as it was bound to be in view 
 of the programme traced for the Union, which was 
 not to be carried through without much State patron- 
 age. 
 
 In the matter of the supply of goods, the sale of pro- 
 duce, dairying, employment of electric power, and of 
 machinery and implements and the like. Dr. Haas' de- 
 centralisation — that is, the distribution of power and 
 authority over a number of independent and self-govern- 
 ing, but federated, centres — and the policy followed of 
 getting the largest possible number together without 
 strict regard for principle, has proved most successful. 
 It is true that even in this branch of its business the 
 Union has at times ambitiously overshot the mark, as 
 for instance when it embarked upon a hopeless specula- 
 tion in the purchase of nitrate deposits in Chile, for 
 working which its capital was ridiculously inadequate. 
 But in general the collaboration of active minds and the 
 common counsels of independent local leaders have 
 proved admirably stimulating. It is indisputable on 
 the other hand that, as Raiffeisen has protested, " the 
 true spirit is wanting " in this Union — the spirit by 
 which he himself was led and which he laboured to in- 
 fuse into others, the spirit of a desire above all things 
 to benefit one's neighbours. But that is an essential 
 and necessary feature of the new departure. The 
 movement has become collectivistically egotistical. 
 For a very brief few years " religion " was once more 
 replaced as a catchword upon the Union banner, to pro-
 
 190 CO-OPERATIVE CREDIT 
 
 pitiate the true EaifFeisenists, with whom a shortlived 
 working arrangement for business — it never was more 
 — was concluded. As a matter of fact it dropped out 
 again when, necessarily, in view of the striking differ- 
 ence of principle, that arrangement came to an end. 
 But in the province of banking the recent disastrous 
 crashes in themselves indicate that the older system, 
 like the wine in the Gospel, is the " better." I had 
 foreseen something of the sort since 1895, when I first 
 visited Haas banks and found a decidedly unco-opera- 
 tive society side by side with a good one, within an easy 
 walk from Herr Haas' own headquarters then at Of- 
 fenbach. You cannot make " big battalions " your 
 aim consistently with the preservation of sound prin- 
 ciple. 
 
 Things as a matter of course grew lax — or, let me 
 say, lax in parts. For wherever rigid supervision is 
 exercised there are as excellent banks in the Imperial 
 Union as are to be met with anywhere — say, in Rhine- 
 land and in Hanover. But it is laxity which brought 
 about those insolvencies, spreading distress over a whole 
 province. It is laxity which has prompted that dan- 
 gerous practice — dangerous in such connection — 
 now become quite common in these banks, of granting 
 credit in current account, for the sake of — so it is 
 frankly avowed — saving trouble. The Union has 
 however on its new lines not been able to do without out- 
 side aid, which outside aid has aggravated the evil (so 
 common in Germany) of relying to excess upon credit 
 rather than upon funds of one's own. When the State- 
 endowed Central Co-operative Bank was created in
 
 VARIANTS AND DANGERPOINTS 191 
 
 Prussia in 1895, the Raiffeisen Union could afford to 
 hold aloof. It felt strong enough in itself. The Im- 
 perial Union could not. It had no sufficient strength 
 in itself. When in 1911 the Eaiffeisen Union, mean- 
 while over-persuaded into entering into business- with 
 the Government bank, came to a rupture with the same 
 Government institution, it could afford summarily to 
 break off relations. Once more the Imperial Union 
 could not. It had been pining for independence. It 
 is so pining now. During the last years of Dr. Haas' 
 life the burden of his admonitions to his societies was : 
 " Try to make yourselves independent ! " As long ago 
 as in 1898 he confided to me that his aim was to make 
 his Union so. He believed that it could be done then, 
 when his followers were indignant at the — very rea- 
 sonable — terms which the State bank announced that 
 it must thenceforth in justice to itself insist upon. 
 " We hold $7,500,000 in deposits," so Dr. Haas boasted 
 to me. Alas, that was not nearly enough. And the 
 ensuing crisis, following upon the withdrawal of Eng- 
 lish monev from German banks, in connection with the 
 Transvaal war, showed that it was not by any means all 
 " good, lying money." Those deposits soon melted 
 away to a small remnant. In 1898 the Government in- 
 stitution could snap its fingers at the Imperial Union. 
 In 1905 the Union began a most well advised agitation 
 for the more systematic collection of deposits. That 
 was a step in the right direction. But the results have 
 not yet proved equal to the need. The Union still lies 
 bound at the feet of the State institution. 
 
 Here we have a pretty typical instance of Co-opera-
 
 192 CO-OPERATIVE CREDIT 
 
 tion become big-men-governed and political, in the in- 
 terests of a section. 
 
 A similar example is to be met with in Hungary, 
 where Co-operation applied to Agriculture is often held 
 up as a model of organisation, on the ground of its 
 rather grandiose conception and the amount of funds 
 made available for it. Nobody could do fuller justice 
 to the truly noble aims and intentions which prompted 
 its founder, the late Count Alexander Karolyi, and to 
 his beneficent work than myself, who have had the priv- 
 ilege of knowing that philanthropist and having his 
 views explained to me. And no doubt allowance has 
 to be made for backward conditions among the peas- 
 antry, and a primitive state of things generally prevail- 
 ing in that land of great opportunities and great 
 promise, which is peopled partially by Magyars. The 
 vis inertiw there prevailing had to be overcome some- 
 how. But impatience to see results has unavoidably 
 forced the movement off its co-operative lines and 
 shunted it on to those of patronage and magnate bene- 
 factions, with, as a matter of course, ample State help 
 and State interference thrown in, to extinguish the pro- 
 per principle. The movement necessarily continues to 
 be favoured by the magnates and the CrowTi, without 
 whose help it would collapse. It has no inherent 
 stamina in itself. And the intended beneficiaries' 
 prayer is this: God bless the squire and his relations, 
 and keep us in our proper stations! It reminds one 
 of what has happened elsewhere — say, in France, 
 where at the outset great landlords befathering the 
 movement of syndicats agricoles, and supplying the
 
 VARIANTS AND DANGERPOINTS 193 
 
 money and the lead, as membres fondateurs, would fre- 
 quently make their tenants " free " of the syndicate 
 membership as part of their holding, but also obliged 
 them to join it as part of their contractual duties, with 
 a full right to use its benefactions, but not a word to say 
 in the management, as membres effecUfs. These things 
 are legacies left to us in the old world of Europe from 
 feudal da^'s. Wherever landlordism is strong, it will 
 still claim its privileges, under the guise of benefac- 
 tions — which " benefactions " are in themselves the 
 antipodes of true Co-operation. The big man may 
 rightly help and may guide. Eaiffeisen distinctly 
 wanted him to do so. But it must be as an equal. 
 Co-operation cannot put up with " bosses." I cannot 
 think that such societies as I have just described 
 would form an acceptable model to copy in America. 
 
 There are other " landlorded " adaptations in Con- 
 tinental Europe. But in them either Church or State 
 plays so conspicuous a part as accessory, that they had 
 best be reviewed under one of the following heads. In 
 general the record of magnate-ridden or " agrarian " 
 Co-operation is not seductive, for all its promising be- 
 ginnings. It has created societies, but no Co-operation. 
 It has distributed gifts, but has not contributed to 
 the creation of new sources of wealth. For the main 
 benefits arising from Co-operation, even Co-operation 
 for credit, is not the money of which it supplies the 
 use, but the capacity for turning opportunities to better 
 account by common action. And whatever be the as- 
 sistance from outside given to Co-operation, the result 
 is bound to be the missing of the principal aim, that is,
 
 194, CO-OPERATIVE CREDIT 
 
 the creation of an inherently permanent and independ- 
 ent institution, ungoverned by any one's caprice, who 
 has given and may therefore also withdraw. 
 
 The partiality evidenced by the Church — by which 
 in the present case is meant the Church of Eome — for 
 rural co-operation can occasion no surprise. Raiffeisen 
 co-operation was intended to be a moral and religious 
 education, and accordingly the priest, or else the minis- 
 ter, must be its natural ally, and his assistance was 
 particularly sought. To whatever of the leading 
 churches he may have belonged, the ordained officer 
 of the Church has from the outset shown himself a firm 
 and loyal supporter of Eaiiieisen's cause, not — at 
 first, at any rate — with any design that one could dis- 
 cover of harnessing small folk by such means to his 
 particular denomination. He acted the part of the 
 good Samaritan. Eaiffeisen himself found his princi- 
 pal support among the clergy of the two leading denom- 
 inations of his own country ; and in Italy, where prac- 
 tically there is no Protestantism, the paroco (the par- 
 ish priest) of Loreggia was the loyal ally of Dr. Wol- 
 lemborg, a Jew, in founding the firstling bank ; and in 
 many enough instances have the society meetings been 
 held by permission in the parish church. As time wore 
 on, however, the Church discovered that it had secular 
 interests of its ovm, which might be greatly forwarded 
 by the help of the popular movement. The consequence 
 was the uprising of " catholic " banks, in which mem- 
 bership came to be made dependent upon churchman- 
 ship and submission to clerical rule. " Denomina- 
 tional Co-operation " does not sound well in co-opera-
 
 VARIANTS AND DANGERPOINTS 195 
 
 tors' ears. But there is something to be said in excuse. 
 There are in fact " catholic " banks which have done 
 excellent work, probably with absolute singleness of 
 purpose. And in some countries one can scarcely help 
 forgiving the denominationalism practised, in view of 
 special circumstances. In Belgium, in Italy and in 
 some parts of France Protestantism is not. And if 
 people are to be made religious and moral, they must 
 be attracted to the Church, and the Church there means 
 " Catholicism." M. Luzzatti is the very reverse of a 
 sacerdotalist or " catholic." Nevertheless he has pub- 
 licly commended the work of the Belgian " Catholics " 
 (who are exceedingly loyal to the Pope) for stemming 
 the rising and scarcely governable tide of Socialism, in 
 their country. 
 
 It is not quite easy to say, but it was probably the 
 German " Peasants' Associations " which started the 
 denominational movement — first of all on the " catho- 
 lic " side. The credit organisations of these associa- 
 tions are pretty faithfully copied from the Eaiffeisen 
 system, and they have done a deal of good. As a se- 
 quel to the raising of the " catholic " banner in them, 
 there have also risen up some Lutheran unions. But 
 the prevailing tone is still " catholic," with pro- 
 nouncedly " catholic " large landowners at the head. 
 It was from these " Peasants' Unions " that Abbe Mel- 
 laerts, in Belgium, learnt Eaiffeisen co-operation, 
 which, congenially to its new environment, became un- 
 der his guidance dyed with the most sable hue of 
 " Catholicism." It reads queer to Anglo-Saxon eyes 
 that the parish priest is the ex-ofjicio chairman of each
 
 196 CO-OPERATIVE CREDIT 
 
 local society, and also its " almoner and spiritual 
 director " — unless he appoint a deputy — and that 
 every meeting of committee or members has to be 
 opened and closed with prayer, with sundry " ad- 
 dresses " distributed over the year and an obligatory 
 " high mass " imposed as a duty throughout the union 
 on the calendar day of S. Isidore, who is the patron 
 saint of the union and, finally, a free " mass for the 
 soul " throwm in as a benefit for the departed member. 
 However the Boerenhond has done and bids fair still 
 to do much good. And the rampant Socialism of the 
 Belgian industrial working classes is held to call for a 
 strong antidote. Extremes call for opposite extremes. 
 From Belgium very naturally " catholic " co-operation 
 has found its way easily into the Netherlands where, in 
 one union, it has become more intolerant than in its 
 first home. In Switzerland, likewise, the new Eaiffei- 
 sen movement, which goes on gathering strength, is de- 
 cidedly tinged with " Catholicism." Probably some 
 stimulus of the sort was needed to make it take root in 
 a country in which banking organisation is highly de- 
 veloped and very cheap arrangements for mortgages, 
 even down to very small amounts, make credit easy. 
 For in the early nineties the Eaiffeisen movement never 
 got beyond three tiny dead-and-alive banks. Barring 
 the payment of a dividend on shares and reduction of 
 payments to the indivisible reserve — to only half the 
 surplus — it operates on Raiffeisen lines. But it is 
 a " Christian Socialist " organisation (in the continen- 
 tal sense of the word) which has started it and which, 
 apart from some little assistance given by the State,
 
 VARIANTS AND DANGERPOINTS 197 
 
 provides it with funds, so as to make it rather a dis- 
 tributing organisation than a creative co-operative in- 
 stitution. The main stronghold of specifically " catH- 
 olic " Eaiffeisenism — as also of Luzzattism — is Italy. 
 There the " catholic " movement, once started in 1894, 
 has completely overtopped the " neutral," which made 
 its appearance in 1883. The contention between 
 Church and State is in that country so pronounced that 
 it was scarcely to be expected thqt the Curia would 
 allow so promising and powerful an instrument for in- 
 fluencing the great mass of the peasantry to exist with- 
 out seeking to put it into its own trappings which, with 
 the rural societies already almost dependent upon 
 priestly assistance, was not a difficult task to accomplish. 
 Pope Leo XIII expressly pronounced his blessing upon 
 co-operative societies of the " catholic " type. One of 
 the intended " feeders " of such banks (still to come) in 
 Spain immortalises that Pope's name. And Pope Pius 
 X was himself a declared co-operator before he became 
 Pope. At the outset the rule of the Church was made 
 to sit lightly enough upon societies. " Catholicism " 
 was more of a badge than of a constraining principle. 
 As time wore on, however, the reins came to be grasped 
 more tightly and the movement consequently became 
 more of a fighting weapon for Catholicism. From a 
 purely co-operative point of view that is to be regretted. 
 For " Catholicism " cannot in this instance be said to 
 have added to the efficiency of the system. Organisa- 
 tion is according to dioceses, with the local bishop ipso 
 facto at the head of each. And bishops are not com- 
 monly good men of business. There have been some
 
 198 CO-OPERATIVE CREDIT 
 
 nasty go-wrongs, which probably less regard for " Cath- 
 olicism " and more for business might have averted. 
 
 Pronouncedly religious as was Eaiffeisen's aim, one 
 cannot, in reviewing the whole progress of the denomi- 
 national movement, see that denominationalism has in 
 general done much good to Co-operation. The cassock 
 notoriously makes but a poor office coat. And generally 
 speaking John Bimyan's " Mr. By-ends " has shown on 
 more occasions than in the " Pilgrim's Progress " that 
 he is no strengthening companion and that the 
 " promised land " lies beyond his reach. Every man 
 had best keep to his own business. 
 
 By far the most dangerous of the three forces named, 
 aiming at diverting C'o-operative Credit from the 
 straight path, is the State. And yet the State has 
 shown itself the most eager of all to seize upon the op- 
 portunities offered to it, like the ruler of Tartarus, who 
 offers a gift to receive a soul in exchange. The State 
 lies under the same suspicion. Por — thus far at any 
 rate — it has never offered an inch in this matter with- 
 out asking for the proverbial " ell " in return. Its 
 pretension shows itself everywhere to be to dictate — 
 and to use. Even the comparatively benign British 
 Government has soon enough discovered its cloven hoof, 
 once the Agricultural Organisation Society had been 
 weak enough to solicit its money aid. That aid was 
 given — of course. It was even pressed upon a hesitat- 
 ing committee. But in return absolute rule was es- 
 tablished. It is the Board of Agriculture which has 
 now framed the rules and nominated the Committee; 
 and its spokesman on that body has openly claimed that,
 
 VARIANTS AND DANGERPOINTS 199 
 
 since it is the Government which pays the piper, it is 
 the Government also which should call the tune. In 
 Ireland the great contention now is whether all Sir 
 Horace Plunkett's splendid work in organising agricul- 
 ture — which has enlisted the admiration of all the 
 country, from King Edward downward — shall be set 
 aside for a badly put together scheme which the farm- 
 ers have shown that they do not want. If these things 
 are done in the green tree of constitutional Great 
 Britain, what is to be looked for in the dry trunk 
 of the Government-ridden Continent? There Govern- 
 ments are after votes — and after votes which are to be 
 directed at will. Where there is no Crown, as in 
 France, there are parties alternately holding the helm, 
 bidding in competition for the support of country folk 
 by gifts out of the taxpayers' pocket, but claiming also 
 to use those votes in their own way. Dr. Hugenberg's 
 very frank admiration to this effect as regards the Gov- 
 ernment-ridden movement in Germany has already been 
 quoted. Dr. Heiligenstadt, for his part, the President 
 of the State-endowed Central Co-operative Bank, who 
 accordingly dispenses the gifts which the Prussian State 
 sets apart for " loyal " co-operators, has admitted in 
 Parliament that the institution over which he presides 
 — ^with unquestionable business ability — was formed 
 and endowed with nearly $20,000,000 of public money, 
 as a means of providing a " head," a leader, for the co- 
 operative host. Without such official " head," so he 
 added, it would have constituted " a danger " for the 
 State to allow so many people to combine in societies. 
 That reminds one of the palmiest days of the second
 
 200 CO-OPERATIVE CREDIT 
 
 rrencli Empire, when all associations of citizens not 
 especially approved by the Government were forbidden, 
 and of the earliest days of the tyrannical First French 
 Republic, which in 1791 by special law likewise inter- 
 dicted the formation of societies of citizens of any sort, 
 for fear that they might hatch seditious plots. The 
 two edicts relegated Co-operation, which the French 
 people were wistfully thinking of, to a far future. 
 
 That is one objection to State interference. The 
 State interferes, in order to rule. It gives, in order to 
 get more back in return. Or, if it do not cherish such 
 intention at the moment when starting on its course 
 of action, opportunity very soon comes in to make of 
 it the proverbial " thief," who under a pretence of kind- 
 ness takes advantage of his power. And in this matter 
 all Governments are alike. 
 
 There are some countries, to be sure, in which it 
 appears difficult to steer clear of all State initiative. 
 Thus we could not have begun a co-operative credit 
 movement in India — richly beneficent as it has already 
 proved — without the State taking the lead — even be- 
 yond passing the Act necessary to legalise it. But I 
 take particular credit for it that — as Lord Curzon has 
 admitted when giving the royal assent to the first Co- 
 operative Act ^ — it was my warning which determined 
 his Government to cut down State aid to a minimum, 
 which has by this time, thanks to the awakening of self- 
 help, already become dispensable. Once more, in Rus- 
 sia the inert mass of knias-ridden moujiks required to 
 be pushed before they could be got to put their hands 
 
 1 See Sir Thomaa Raleigh's " Lord Curzon in India," page 179.
 
 VARIANTS AND DANGERPOINTS 201 
 
 to the plough. jSIow that their intelligence has been 
 aroused, they are rightly seeking to throw off the golden 
 yoke and rely exclusively upon themselves. And the 
 Eussian Finns, who have a movement of their own, con- 
 tend that without Government aid, in the shape of pub- 
 lic money for their central bank, they could not have 
 started those co-operative banks which they now find so 
 extremely useful. They may be right or they may be 
 wrong. In any case that " miller's thumb '' pressed 
 upon Co-operation has even there — has to a far greater 
 extent in Eussia proper, in Eoumania, in France and 
 in Austria — left its ugly mark upon artificially stimu- 
 lated Co-operation. The determination to rule auto- 
 cratically and to exploit was very clearly revealed in 
 the action of the Prussian State-endowed Central Bank 
 when its President by his tyrannical attempt at dicta- 
 tion brought about his dramatic rupture with the Eaif- 
 feisen Union. He fondly persuaded himself that he 
 had the Union helpless within his grasp. He had mis- 
 calculated. Eaiffeisenism resisted — and carried the 
 day — and is the better for it. 
 
 However there are more reasons than this to make it 
 advisable for co-operators to beware of an alliance with 
 Government. Government may do a great many 
 things. Among the services which under the double 
 cross of St. Stephen it has rendered to Co-operation in 
 Hungary, Count Joseph Mailath, the present leader of 
 the Magyar co-operative movement, includes as the 
 chiefest the pressure which, through the army of its 
 servants, it has been able to exercise upon the popula- 
 tion, to form co-operative societies, such as it desired,
 
 202 CO-OPERATIVE CREDIT 
 
 to order. Here are his own words. ^ " Here was the 
 money (provided conjointly by the Magnates and the 
 Crown) to begin with; however the main advantage 
 (viz, of Government interference) was, that public ser- 
 vants now considered it to be their duty to promote the 
 undertaking with their influence, and bestirred them- 
 selves actively in its behalf." Quite so. The thing is 
 rampant both in Hungary and in Austria — and else- 
 where as well. Public officers under Government pre- 
 cept employ their political power to press people, quite 
 independently of their own wishes, to form societies 
 which are dubbed " co-operative," but which in not the 
 remotest degree deserve that name. They are societies 
 " to please the authorities," dependent for life upon the 
 Government's smile and withering away as soon as such 
 smile, and the favour which lies behind it, are with- 
 drawn. Experience has fully established the fact that 
 genuine, creative co-operation can live only when based 
 upon its own efforts and thoroughly independent, called 
 into being by the earnest will of the people who prac- 
 tise it. A Government may teach, instruct, assist with 
 means for obtaining knowledge. It need grudge no 
 generosity on such work. But the resolution to co- 
 operate must be the free will act of the co-operators 
 themselves. As for money help, Laurence Sterne well 
 observes that " not all is gain that is got into the purse." 
 There is " luckv monev." And there is also very un- 
 lucky. Look at the millions (of marks) of State money 
 
 1 See the Report of Proceedings of the Sixth Concrress of the 
 International Co-operative Alliance. 1904. (Published by P. S. 
 King and Son, Westminster), p. 451.
 
 VARIANTS AND DANGERPOINTS 203 
 
 wasted in Prussia on " co-operative " elevators which 
 would not live! Look at the money thrown away in 
 Italy on the contadino impreparato, that is, the peas- 
 ant unprepared for and uuinstructed in Co-operation! 
 Look at the money wasted in Austria on societies that 
 were formed with taxpayers' crowns, only to collapse! 
 And look at the Hessian banks which, indirectly at any 
 rate, rested on State coddling! 
 
 Government is unfitted to direct — and therefore to 
 aid — Co-operation, because it cannot distinguish be- 
 tween man and man, and case and case. It necessarily 
 has to proceed mechanically, by rule of thumb, because 
 all with whom it has to do are equally citizens. Now 
 that is the last thing that will answer in matters of 
 credit. The particular object of Co-operation in that 
 application is to disting-uish between the good borrower 
 and the bad, the legitimate case and the illegitimate, in 
 Professor Carver's words, to know how to refuse, as well 
 as to grant, credit. It has to use human brains in every 
 transaction, regulating its action accordingly. It wants 
 in its officers responsibility to members, not to a politi- 
 cal authority, which may forbearingly, in the favoured 
 man, take the will for the deed and lose others their 
 money. And we ought to bear in mind, in addition, 
 that the object of Co-operative Credit is not simply to 
 distribute money, but to teach co-operators how to em- 
 ploy their puny forces, how to take advantage of op- 
 portunities by common action — just as the object of 
 Education is not to cram pupils' heads with facts and 
 figures, but to teach them how to use their brains. 
 
 There is a great deal of Government-started and
 
 204, CO-OPERATIVE CREDIT 
 
 Government-directed Co-operation in Europe. But 
 the number of its institutions is superior to the value 
 of their achievements. Germany, and in it above all 
 others Prussia, always suspicious of independent Co- 
 operation — as we have seen — set the tune. It 
 created its State-endowed Central Bank, on behalf of 
 which it is set up as a boast that it does not interfere in 
 the organisation of societies. Ko; not formally. But 
 it holds the power of the purse which is, as we know in 
 constitutionally governed countries, the pith of the mat- 
 ter, the Archimedean point from which the world may 
 be moved. And it is not from regard for Co-operation 
 that it forbears to interfere in organisation, but from 
 regard for its own safety. A regional union of banks 
 makes a safer borrower to lend to than a mere local 
 society — especially as the State bank compels the local 
 banks for its further protection to interlink their lia- 
 bility, so that one becomes answerable for all the others, 
 which is a most dangerous practice for any bank to 
 agree to. State aid and interference have not altered 
 the form of organisation much in Germany, but they 
 have essentially altered its spirit. And we see the 
 results in the continued refusal of the Schulze-Delitzsch 
 banks to have anything to do with the State bank, in the 
 defection of the Eaiffeisen Union, the dissatisfaction ex- 
 pressed by the Union of " Trade Credit Societies " and 
 in the yearning for power to rebel evidenced among the 
 members of the Imperial Union. 
 
 The adaptations carried out in France by reason of 
 the intervention of the State differ somewhat in char- 
 acter from those effected in Germany, but not very
 
 VARIANTS AND DANGERPOINTS 205 
 
 much in their results. The original idea of the prime 
 movers in the matter was to acclimatise the Eaiffeisen 
 system in France. It was the success of the Eaiffeisen 
 banks that M. Meline, then already the leader of what 
 may be called the agricultural party in France, pointed 
 to when demonstrating his desire to stimulate people to 
 emulation in his own country. And the founder of the 
 first agricultural credit society established in France, 
 M. Bouvet, of Poligny, wrote me twenty years ago 
 that " no doubt it would have been better if we could 
 have established Eaiffeisen societies." It was from the 
 Eaiffeisen Union that M. Louis Durand learnt his co- 
 operation. And the Centre federatif, which was the 
 first body systematically to set itself to organise co- 
 operative credit societies in its country, placed the Eaif- 
 feisen system upon its programme by the side of M. 
 Luzzatti's. However it appears that the average 
 Frenchman lacks initiative of his own and wants to be 
 driven. M. Bouvet had to devise a new system, 
 financed and directed to some extent by himself. M. 
 Durand's first two — purely Eaiffeisen — societies 
 soon collapsed. And the Centre federatif never made 
 any headway to speak of, either with Luzzatti or with 
 Eaiffeisen banks. Closely following the German ex- 
 ample seemed, of course, out of the question. Politics 
 forbade that. There was, accordingly, to be no central 
 bank, as in Germany. Whereas the German Central 
 Bank forced itself upon a co-operative system ready 
 made, the French Government began by creating a cen- 
 tral fund, growing to huge proportions, under its own 
 management, with the help of which it proposed, and
 
 206 CO-OPERATIVE CREDIT 
 
 continues to try, to organise a co-operative system sub- 
 ject to its sway. So in one respect it interferes more 
 with credit societies than does the German bank, while 
 on other points no doubt its action is more restrained. 
 Like the German bank it deals — in the main — not 
 with single local societies but only with " regional 
 banks," composed in each case of a cluster of local banks, 
 but really charged to create such. It is, of course, eas- 
 ier to deal with not quite a hundred regional banks 
 than with some thousands of local societies and, al- 
 though the organisation of regional bodies is different 
 from that in Germany — where the district central 
 bank is supported by a very network of entangled local 
 liabilities — still, since it is the regional bank which 
 holds and dispenses the money, the security given is 
 better. The regional banks are advanced — and some 
 of them at any rate look upon the advance as a gift — 
 money allotted to them by a Government Commission 
 which has an unfettered hand in the matter, free of in- 
 terest, on condition of relending it to local banks at a 
 very moderate rate, which should not exceed the bank 
 rate of 21^ psr cent., but has in many cases been fixed 
 at only 2 per cent. Such arrangement has in times of 
 tight money led to the most unbusiness-like result that, 
 whenever more money was required — which is usual 
 in times of tight money — since the Government ad- 
 vance was onlv limited, such " more " had to be ac- 
 quired at a rate which made the bank the heavier a loser 
 the more business it did. Practically it is the regional 
 banks — in shares of which local banks designedly in- 
 vest all their own share money, since in such shape every
 
 VARIANTS AND DANGERPOINTS 207 
 
 franc of theirs commands potentially four francs of 
 Government funds — which lend, and the local banks 
 which only adjudicate upon the case. Government in- 
 terference has necessitated some very restricting me- 
 chanical limitations — as to the object of the advance, 
 the purely " agricultural " calling of the borrower and 
 so on — which have of course worked badly and are 
 therefore about to be recast. ISTotwithstanding excellent 
 administration at headquarters, in the Ministry of Ag- 
 riculture, among a huge host of banks created to give 
 employment to at any rate a decent part of the public 
 money voted, the results have been rather the systema- 
 tised distribution of money cheapened by very artificial 
 means than the creation of productive Co-operation. A 
 Select Committee of the Chamber of Deputies appointed 
 to inquire has recently reported in the same sense in 
 which the Director of Agricultural Credit has repeat- 
 edly complained in his circulars, that money is only 
 very tardily repaid and that funds are not accumulated 
 as was intended. ■•• The Government intended its assist- 
 
 1 " Le Credit agricole, tel qu'il fonctionne actuellement, n'est 
 pas a I'abri de tout reproche, et sur deux points au moina on 
 peut relever des vices dans son fonctionnement. 
 
 " C'eat d'abord un abug g6n6ral des renouvellements de prets. 
 L'honorable M. Raynaud, Ministre de I'Agriculture, relevait d^ja 
 cette imperfection dans son rapport du 23 novembre 1910 au 
 President de la Republique: ' Certaines caisses,' disait-il, 'n'exi- 
 gent pas de leurs cmprunteurs un engagement precis en ce qui 
 concerne la date du remboursement du pret demands, et des 
 renouvellements trop nombreux en prolongent la dur4e d'une 
 facon anormale et qui n'est pas sans danger. II est des caisses 
 regionnales qui cherchent, par des artifices varies de leur comp- 
 tabilit^, a dissimuler en quelque sorte inconsciemment a elles memos 
 et a I'Administration la veritable situation qu'elles se cr6ent 
 ainst et les dangers auquels elles s'exposent et qui leur ont 4t6 
 souvent signal^s.' Ces dangers sont reels, car lorsqu'un agri- 
 culteur vend une recolte obtenue a I'aide d'un pret et ne rem-
 
 208 CO-OPERATIVE CREDIT 
 
 ance to serve as a preparation for fully independent 
 Co-operation, like that practised in the Kaiffeisen Un- 
 ion. However members shrink from accepting the re- 
 quired liability and prefer artificially cheapened loans 
 to the gathering up of an endowment fund of their own. 
 Hence the law is now to be recast. 
 
 Here is another attempt made to create Co-operation 
 from the outside, with the help of outsiders' money, 
 by mechanical methods, which may be said to have 
 failed! N"o wonder the more responsible agricultural 
 opinion, as reflected in the Agricultural Syndicates, has 
 rebelled and is trying to form its own independent 
 central institution. In Government quarters the dis- 
 satisfaction of these gentlemen is attributed to political 
 motives. The Agricultural Syndicates are said to be 
 
 bourse pas la caisse locale, celle-ci perd tout contrOle sur I'usage 
 de I'argent qu'elle a prgte, et son emprunteur peut se trouver un 
 jour dans I'impossibilitg de la rembourser sans qu'elle s'en doute. 
 
 " En outre il existe ime tendance regrettable, parmi les societ^a 
 de credit agricole, h considerer conime des dons les avances tem- 
 poraires que I'Etat leur fait. C'est ainsi qu'au niois de mars 
 1010, dans son rapport a I'Assembl^e generale, le directeur d'une 
 caisse r^gionale s'exprimait de la fagon suivante: 'Nous ne 
 pensons pas que I'Etat nous oblige a rembourser un jour les 
 avances qu'il nous accorde aujourd'hui si g^nfreusement.' Et 
 il parlait aillcurs ' du cas bicn improbable oil I'Etat demanderait 
 le remboursement de ses avances . . .' Le r^sultat d'une con- 
 ception aussi abusive est qu'en 1909, si I'Etat avait accords pour 
 plus que 47 millions d'avances, il n'avait regu que 2,800,000 francs 
 de reboursements. Et jusqu'a I'heure actuelle, les rembourse- 
 ments sont demeur^s aussi insuffisants. 
 
 " Le credit agricole n'a pas atteint en France, meme depuis 
 cette nouvelle organisation, le doveloppement qu'on lui voit 
 prendre ailleurs." 
 
 Rapport fait au nom de la Commission du Commerce et de 
 VIndustrie charg^e d^examiner le projet de loi ayant pour objet 
 V organisation du cridit au petit et au moyen commerce, a la petite 
 et la moyenne industrie et aux associations ouvriires de produc- 
 tion. Par M. J^andry, depute. — Chambre dea D^put^s. Session 
 de 1913. No. 2590.
 
 VARIANTS AND DANGERPOINTS 209 
 
 ruled by royalists. To some extent this may be true. 
 However the arousing of party spirit is unavoidable, 
 once the direction of a movement which ought to be 
 non-political, and the supply of it with money, are 
 left to a distinctly political authority, like the party 
 Government. If royalists and " Catholics " rebel 
 against a " secularist " and " republican " Govern- 
 ment's action, it is that Government which began the 
 strife by invidious discrimination against societies 
 which in the opinion of lawyers are as fully entitled to 
 benefits as those patronised by the Government, but 
 which on a purely quibbling plea are placed on the in- 
 dex. Such " republican " movement is on the same 
 lines as the " Catholic " in Italy and Belgium, only 
 marching in the opposite direction. 
 
 Italy, the land of free credit Co-operation of the 
 Luzzatti and Wollemborg type, has its owti little tale 
 to tell of unsuccessful Government-forced Co-operation. 
 Co-operation postulates a certain amount of economic 
 education and fitness; and it also postulates a certain 
 amount of economic independence. Such conditions 
 prevail in the North of Italy, where accordingly Co- 
 operation prospers. They are not to be met with in the 
 South, where distress among the rural population is 
 great and appears on that ground and on others particu- 
 larly to call for Co-operation. The remedy occurring 
 to the mind of the Government accordingly was to form 
 Co-operation with the help of money provided by itself 
 and by great public institutions such as the Savings 
 banks — money to be dispensed by other great insti- 
 tutions like the Bank of Naples under its direction.
 
 210 CO-OPERATIVE CREDIT 
 
 Of course out of such assistance it was intended that 
 independent Co-operation should in due course grow up. 
 However, as a Government writer, Dr. Baccaglini, has 
 put on record in a Government Report/ and as is noto- 
 rious from the comments of non-Government public 
 prints, the attempt has produced only very sparing re- 
 sults. The explanation is that, as a writer in the Co- 
 operazione Rurale has pointed out, the Government has 
 been all the time " boring with the \\Tong tool." The 
 rustics of the South are backward, uneducated, primi- 
 tive — so it is true. But, also, they have no solid 
 ground to stand upon. They are tenants at will, whom 
 a capricious, arbitrary and greedy class of landlords 
 dispossesses at pleasure, as soon as some other man of- 
 fers a lira more rent. With such negation of security 
 for their existence you could not expect these men to co- 
 operate. They have nothing to co-operate upon! 
 What they want first is fixity of tenure, at a fair rent. 
 That being acquired, with the help of education it is 
 probable that self-interest would lead them into Co-oper- 
 ation without any forcing. We have the proof of this 
 in the truly remarkable success of collective land hiring 
 (affittanze collettive) among the very same class of 
 people in Sicily. It gives them their own holding for 
 a good spell of time. And out of Co-operation in land- 
 renting appears to be already growing up a desire for 
 co-operation in other forms, to make that collective 
 renting more fruitful of results. 
 
 1 " Credito Agrario La Legislazione Italiana sul Credito 
 Agrario. Cenno storico e critico dell' Aw. Allessandro Bac- 
 caglini. Roma 1911."
 
 VARIANTS AND DANGERPOINTS 211 
 
 In Austria it is rather the local Governments who 
 organise and befather credit co-operation, than the im- 
 perial, although the latter helps materially with money. 
 Austria is not really a compact empire, but rather a 
 congeries of heterogeneous states under one head, but 
 having for most things their own separate governments, 
 legislatures and legislation. The various legislatures 
 are very much given to " meddling and muddling." 
 Accordingly the Raiffeisen system — which they have 
 all fixed upon as the model type to be cultivated — is 
 there not by any means generally pure, although there 
 is some that is good among it. That befathering has 
 produced respectable numbers of societies under the 
 forcing of public officers working for their promotion, 
 but of such societies not a few regularly come to a pre- 
 mature end. Apart from Credit, Government has lost 
 not a little money in " supported " co-operative under- 
 takings, which have not lived long, as was to have been 
 foreseen. A rather noteworthy feature about Austrian 
 Co-operation is that non-German races — considering 
 themselves of course under " alien " Government — put 
 far more " back " into their co-operation than German, 
 acting with greater " verve " and showing greater read- 
 iness to make sacrifices for what they consider to be 
 a specifically " national " cause. That is only an ad-- 
 ditional proof that to produce genuine, fruitful co- 
 operation push from inside is required, not from with- 
 out. 
 
 Once more, in Roumania co-operative agricultural 
 credit — of which there is plenty — is altogether a crea- 
 tion of the State, which has shown itself so kind in its
 
 212 CO-OPERATIVE CREDIT 
 
 benefactions and guidance that people now rather dread 
 the prospect of being thrown upon their own adminis- 
 tration. It is so pleasant to have the Central Bank to 
 provide money, inspection, everything, and simply to 
 live upon what through it the Government gives. That 
 is possible in a small country, where people have been 
 long accustomed to obsequious — not long ago it was 
 absolutely servile — submission. But it is not healthy 
 co-operation. It creates nothing that will stand by it- 
 self and is a burden rather than a support to the com- 
 munity. 'No doubt the Government had to take the 
 initiative, or nothing would have been done. And now, 
 like Sindbad the Sailor, it finds it difficult to shake off 
 the load which it first placed upon its own back. 
 
 It would be idle to look for precedents in such coun- 
 tries as Spain and Portugal, where the movement is in 
 its first infancy and cannot yet find its bearings. The 
 Scandinavian countries have plenty of agricultural 
 co-operation, but practically no co-operative credit — 
 except for mortgages. Kor yet could we look for 
 much guidance to Kussia, to its to some little extent 
 self-governing dependency of Finland, or to Bulgaria, 
 notwithstanding that in all these three countries imi- 
 tation Raiffeisen Co-operation has gained a very good 
 foothold and has rendered capital services. The cir- 
 cumstances there are widely different from those which 
 we have here to consider. Co-operative spirit is 
 strongly developed in Finland with its sturdy, manly, 
 faith-keeping population. There, as well as in Eussia 
 proper, the districts of banks have had to be greatly ex- 
 panded, under orders from Government. That how-
 
 VARIANTS AND DANGERPOINTS 213 
 
 ever weakens the main feature of Raiffeisen Co-opera- 
 tion. Also, in some part owing to this, in Finland, 
 shares have had to be made larger, and further inroad 
 has been made upon Raiffeisenism by declaring the re- 
 serve fund divisible. In Russia soi-disant Raiffeisen 
 Co-operation is still altogether under Government domi- 
 nation. Raiffeisen's ideal aim has been wholly dis- 
 carded. But attempts in the direction of attaining 
 emancipation are in progress which, it is to be hoped, 
 will restore what has been cast aside. Economic condi- 
 tions in rural districts have so much advanced of late 
 years that there is a good promise of a successful new 
 departure. In Bulgaria similar conditions prevail, 
 with results already noticed. In every one of these 
 three countries has the Government rendered very sub- 
 stantial help, but only with the result of ingraining in 
 its beneficiaries a habit of dependence. 
 
 In India of course the peculiar conditions of the 
 country rendered State help indispensable for a be- 
 ginning and State laws as well as local circumstances 
 have caused many departures in form from the origi- 
 nal Raiffeisen pattern. But, so far as can be judged, 
 the right spirit has been preserved and the system ap- 
 pears to suit the temperament of the Asiatic races, both 
 Hindoo and Mussulman, perfectly. Circumstances in 
 that eastern country are too different from those which 
 we have here to reckon with, for a review of the re- 
 sults obtained to be quite in place. One point, how- 
 ever, is deserving of notice. Before Co-operation was 
 made possible by the Act of 1904, there was terrible 
 croaking in many quarters that the thing must prove
 
 214. CO-OPERATIVE CREDIT 
 
 impossible. There was no money, no education, no 
 understanding of the thing, nobody among the millions 
 of illiterates to undertake secretarial work, caste divi- 
 sions must prevent common action, the usurer was too 
 powerful, and so on. The Act has come, a handful of 
 Registrars have been set to work, and there are thou- 
 sands of banks (there were over seventeen thousand at 
 Midsummer 1915) doing business, in which as yet as 
 good as no loss has been made. Enormous good has 
 resulted. The country wears a different aspect. New 
 hope gilds the horizon for the rayat. And in the 
 words of a native Registrar, " India has never before 
 received so great a boon." The lesson of this is that 
 we should not be deterred by difficulties such as have 
 been asserted to exist to such a degree as to make the 
 enterprise hopeless in every country where subsequently 
 Co-operative Credit has taken root and flourished. 
 " Everybody told me," so writes Dr. Wollemborg, the 
 " Eaiffeisen " of Italy, " that my undertaking was ' im- 
 possible.' And I silently recalled to mind that fine 
 saying of Carlyle's: Every noble enterprise is 'impos- 
 sible ' at the outset." Co-operative Credit has shown 
 that it knows how to overcome " impossibilities." But 
 it is not State aid and State guidance which have en- 
 abled it to overcome and conquer. It was the sturdi- 
 ness of Co-operators themselves. 
 
 It seemed fit briefly to review the various adaptations 
 of the Eaiffeisen system which have taken place. But 
 I would not hold up any of them as a model for follow- 
 ing. They prove, however — which point is of im- 
 portance — that the system is highly adaptable, and
 
 VARIANTS AND DANGERPOINTS 215 
 
 that it will without detriment accept new forms to 
 make it appropriate to new surroundings. But they 
 also prove that the more faithfully is the original prin- 
 ciple adhered to, the better results are likely to be pro- 
 duced, under both aspects, the economic as well as the 
 ideal.
 
 CHAPTER VIII 
 
 CO-OPEEATIVE MOKTGAGE CREDIT 
 
 The talk relating to new credit facilities in America 
 is about " Co-operative Credit." However the main 
 thought appears to be pointed at Mortgage Credit. 
 The two things are evidently considered as more or less 
 identical. But in truth they are not at all so — or at 
 most only partially. The object of this book is to ex- 
 plain how Co-operative Credit may be organized and 
 practised. The principal task set to the author in the 
 present chapter accordingly is to deal with such knowoi 
 mortgage credit as is co-operative and to set forth its 
 best methods. However it is impossible to approach 
 such subject without previously devoting at any rate 
 a short space to a hurried consideration of the relative 
 merits of co-operative and non-co-operative methods of 
 mortgage credit. 
 
 Mortgage credit of course there must be in any 
 country with private property in land. In these mod- 
 ern days landowners cannot do without it. Landown- 
 ers, like others, require credit to enable them to carry on 
 their business — let alone adjustments with co-heirs, 
 jointures and the like. And it is no more than natural 
 that, as a suitable pledge for credit, an owner of land 
 
 should in the first instance think of his land as a con- 
 
 216
 
 CO-OPERATIVE MORTGAGE CREDIT 217 
 
 venient security to offer. It must also appear perfectly 
 proper that wherever debt is incurred for the purpose 
 of improving land, the cost of such improvement should 
 be charged upon the land itself and united with it into 
 one asset. The mischief is that the improvement of 
 land is not by any means in every instance the true 
 object for which the credit is asked. However there is 
 the land ; it is the property of the demander of credit ; 
 and, instinctively, in seeking credit, the latter will turn 
 first to this most readily pledgeable security, the tan- 
 gible, seizable asset of his land. 
 
 That is all perfectly consistent with common sense. 
 However, evidently, though the land is there and its 
 pledgeableness is undoubted, the method of credit which 
 takes it as security will have to be systematically or- 
 ganised. Wherever it is not so — as at the present 
 moment is thought to be the case in the United States — 
 the want of organisation is keenly felt. Xow in the 
 United States organisation undoubtedly presents certain 
 difSculties. There is the shifting character of even 
 the landowning population — which elsewhere is 
 looked upon as rooted in the soil; there is the uncer- 
 tainty about the real value of the land; there is the 
 want of touch between the lender and borrower ; there is 
 the comparative newness and want of settled character 
 of the country ; and there is the standing difficulty about 
 title. Hence those irregularities and hardships in the 
 use of mortgage credit which are so frequently made 
 a subject of complaint. And hence also the present cry 
 for organised mortgage credit — one result of which is 
 to be seen in the despatch of the much spoken-of " Amer-
 
 218 CO-OPERATIVE CREDIT 
 
 ican Commission " to Europe. That Commission was 
 to inquire into European methods, of which very much 
 has already been heard in the study of practical eco- 
 nomics. Its inquiry has borne fruit in a number of 
 more or less plausible proposals put forward, for the 
 adoption or else adaptation of those European methods. 
 ^0 doubt Europe, with its earlier settlement, with its 
 narrower limits alike of population and of territory, 
 and with its much more extended history of appropriate 
 legislation, possesses the advantage — if advantage it 
 is — of priority and more voluminous experience over 
 America. The study of its credit institutions crowded 
 into a short three months' inquiry, has very naturally 
 produced some little confusion of thought, the effects 
 of which are very traceable in what has been since 
 written and proposed. Among other things, it ap- 
 pears to be supposed in some quarters that the co-oper- 
 ative credit advocated by Schulze-Delitzsch and Raif- 
 feisen — who in truth would not allow mortgage credit 
 in their banks — and the mortgage credit dispensed by 
 the Prussian landscliaften — which are the only mort- 
 gage credit institutions to have attracted serious atten- 
 tion — are the same thing; and that the credit operated 
 by the landschaften is "co-operative " in the same sense 
 in which the term is applied to the Schulze-Delitzsch 
 and Eaiffeisen banks. There could be no greater and 
 more misleading mistake. There is indeed a " sort " 
 of Co-operation in the practice of the landscliaften, in- 
 asmuch as there is joint action among a number of per- 
 sons, and as the landscliaft is a society of borrowers. 
 But the two institutions differ in more than one essen-
 
 CO-OPERATIVE MORTGAGE CREDIT 219 
 
 tial feature and no co-operator would recognize the 
 landschaften as truly co-operative. The fact that there 
 are no ideal objects in landschaft credit, such as all co- 
 operators identify with " Co-operation," and that these 
 bodies pursue an object purely of business and profit, 
 we may here leave out of account. For it is business 
 that Americans are in this connection thinking of. 
 However a truly co-operative association wants to pos- 
 sess a certain amount of elasticity. It wants to be 
 democratic. And it wants to be free. Xow none of these 
 qualities at all necessarily appertain to the landscliaft. 
 Landschaften are limited locally, of course, and to a 
 great extent also with regard to the class of their bene- 
 ficiaries ; they are anything but democratic ; and so far 
 from membership being in every instance optional, it 
 began by being, and still to a certain extent is, com- 
 pulsory. During the six years that I owned some prop- 
 erty in Silesia, I was de rigueur, together with all my 
 neighbours, unlimitedly liable, in the last resort, with 
 all that I possessed, for all debts which the Silesian 
 landscliaft might incur, although I had not a cent of 
 landschaft money invested in my property, therefore 
 received no countervailing benefit. The fact that to 
 some extent liability has been limited — late in the day 
 — and that a wider application has been given to land- 
 schaft business than was originally contemplated, lend- 
 ing on peasant land being made allowable, alters very 
 little in the general character of the institution. " Al- 
 lowable " does not necessarily mean " mainly prac- 
 tised. " The figures quoted by Herr M. Conrad in the 
 Jahrhiicher fur Nationalokonomie und Statistik, in
 
 220 CO-OPERATIVE CREDIT 
 
 respect of a lajidscliaft specially formed to cater for 
 peasant proprietors, which show that out of about 30,- 
 000 peasant properties in the province of West Prussia 
 (upon which much money has been loaned by way of 
 mortgages, for the most part at a high rate of interest 
 viz. 5^ per cent.) only 4,138 had found their way to 
 the landschaft particularly created for them, prove that 
 there is a great difference between the two things. The 
 institution is still in the main, as it was when Herr 
 Conrad collected his statistics, an institution for the 
 large, privileged proprietors. A member of a land- 
 schaft also does not, as a member of any truly co-opera- 
 tive society would do, share in the accumulating bene- 
 fits of the institution. In a co-operative society the re- 
 serve fund amassed would in part belong to him, 
 whether as an indivisible collective possession, or as a 
 fund eventually to be shared out. He possesses, in- 
 deed, certain limited elective rights in the selection of 
 some officers. But such rights are very limited. The 
 organisatory machinery is provided for him, in the 
 main by the political authority, which endows his in- 
 stitution with certain privileges, to be used under its 
 own carefully guarded supervision, but which claims 
 a big say in return, and to whose authority he is con- 
 strained to bow. 
 
 No doubt, in its proper place the landschaft is a 
 useful thing and has produced much good. The ques- 
 tion is whether the United States is such a " proper 
 place " for it. But one curious feature in the present 
 discussion, by which one cannot help being struck, is, 
 that all proposals for acclimatising the landschaft in
 
 CO-OPERATIVE MORTGAGE CREDIT 221 
 
 the United States hitherto made contemplate the sacri- 
 fice of the very main advantage which the landschaft 
 was designed to secure and which might be considered 
 as inherently co-operative, that is, the advantage of 
 " bulk." The idea underlying the landschaft is that 
 of a large mass of landed property brought together into 
 one pool, valued throughout according to one common, 
 understood standard, on principles likewise commonly 
 understood and accepted, and a correspondingly very 
 large issue of landbonds also governed by a common, 
 well understood standard, which makes them in effect 
 current money or at any rate a widely recognized se- 
 curity. The idea of competition is in the landschaft 
 expressly excluded. However in the United States it 
 has been proposed to form, as a corresponding institu- 
 tion, a number of distinctly competing, possibly very 
 small organisations, down to only $10,000 share capital. 
 That figure has been adopted for the measures brought 
 forward in Washington, and also by the Wisconsin leg- 
 islature. That means foregoing all that makes the 
 landschaften strong. 
 
 However, among the several instances of confusion 
 of thought generated by the study applied to Eu- 
 ropean institutions of credit by some not fully in- 
 formed members of the American Commission there 
 appears also to be this, that some at any rate of the 
 American writers pleading in favour of the landschaft 
 as a model to follow, do not mean a landschaft at 
 all in the sense properly attaching to the term, but 
 something formed in free imitation of it, retaining 
 characteristics which students of the subject have long
 
 222 CO-OPERATIVE CREDIT 
 
 since come to regard as common property, but advisedly 
 discarding others, which are generally looked upon as 
 essential to the landschaft, but by no means ideal, 
 namely the very cumbrous working apparatus — com- 
 pulsory membership as a matter of course — limitation 
 of benefits, magnate rule, investment with judicial pow- 
 ers in the matter of foreclosure and Crown influence. 
 The particular features of landschaften which have kin- 
 dled the desire of some Americans to possess something 
 of the same sort appear to be, in the first place, the ap- 
 plication of the principle of terminable annuities, well 
 known in national finance, as also in insurance business, 
 as a means of gradually and — as was thought — in- 
 sensibly, repaying a mortgage debt ; and, next, the 
 raising of the requisite funds for granting such credit 
 by means of an issue of landbonds or debentures, cor- 
 responding in amount exactly with the value of the 
 mortgages granted, so as to make a share capital super- 
 fluous. This feature likewise is practically copied 
 from national finance. The credit of adapting the two 
 mutually complementary methods to mortgage credit 
 belongs neither to Frederick the Great, to whom it is 
 generally imputed, nor to his adviser in the matter, 
 Biihring, a Berlin merchant — who thought out the 
 original scheme for the landschaften in 1767, four years 
 after the conclusion of the Seven Years War, to see it 
 adopted by King Frederick the Great in respect of his 
 newly conquered province of Silesia, in 17G9 — but to 
 the directors of a joint stock mortgage bank at Stock- 
 holm, which was founded in 1G68. In 1754 those di- 
 rectors, having discovered that ^ per cent, sinking fund
 
 CO-OPERATIVE MORTGAGE CREDIT 223 
 
 would in this way pay off a 100 crown debt in 55 years, 
 whereas mere annual instalments of the same amount 
 would require 200 years for the process, introduced 
 the principle of amortisation into their practice. 
 Frederick the Great's landschaften at first simply 
 granted mortgages, as of old, on distinct properties, the 
 only difference being that the entire number of memr 
 bers made themselves in the last resort liable in un- 
 limited liability, for repayment, entering into a collec- 
 tive bond. It was some time before the amortisation 
 scheme was there adopted. It was the landschaft of 
 Posen, by the way, formed in 1857, which first made 
 amortisation an indispensable condition. From that 
 centre the practice became gradually extended to other 
 landschaften. But even to the present day landschaf- 
 ten retain the right to grant ordinary mortgages, for a 
 certain more narrowly limited term of years, without 
 amortisation. Up to the thirties of the last century 
 there was a right of notice for repayment. And within 
 the memory of living men landbonds (pfandbriefe) 
 were still made out in respect of distinct properties, 
 whose name appeared in the text. This shows that 
 the scheme, as we now see it practised, was not by any 
 means a matter of sudden inspiration, but of gradual 
 evolution. 
 
 The circumstances which called for dealing with 
 mortgages in the manner described were, once more, 
 precisely such as have suggested similar measures to 
 ministers of finance, namely, want of credit and the 
 absence of a suitable institution for supplying it, so 
 that in some way or other the general public had to be
 
 224, CO-OPERATIVE CREDIT 
 
 directly appealed to for the provision of the money re- 
 quired. Now, as observed, these two features — which 
 were certainly a discovery at the time, and which have 
 on the whole proved highly successful, having been f.rst 
 applied before there was a landscliaft — have long since 
 become common property and are applied with admir- 
 able effect by corporations, which have advisedly 
 shuffled off the coil of a feudal and Crown-ruled ap- 
 paratus and work all the better for it. Obviously 
 such method of giving credit requires, not an individual 
 capitalist but a permanent corporation to practise it. 
 For an individual could neither grant mortgages of the 
 sort required, nor float the corresponding bonds. 
 
 It deserves to be pointed out that in addition to se- 
 curing for the individuals concerned the two advantages 
 just mentioned, the new institution at the same time 
 also distinctly benefited the community — directly, not 
 merely indirectly, that is, by providing easier credit for 
 agriculture. For it " mobilised," as the Germans call 
 it (that is, rendered " liquid ") a very substantial mass 
 of funds which in an ordinary mortgage would have 
 been " fixed." Taking the shape of landbonds {pfand- 
 hriefe,) the mortgage assumes a liquid, readily ex- 
 changeable and negotiable shape; it becomes to some 
 extent " money " — " money current with the mer- 
 chant," such as an ordinary mortgage is not. A Ger- 
 man landbond passes readily from hand to hand; and 
 the fact that it can do so renders it at once a distinctly 
 attractive security. 
 
 The new practice has in general proved altogether 
 satisfactory; but Americans who covet it will do well
 
 CO-OPERATIVE MORTGAGE CREDIT 225 
 
 to note that in Germany it has not been found all 
 Elysian happiness. To the mind of the German land- 
 owner it is disfigured by several drawbacks which dis- 
 tinctly impair its value and attractiveness, quite apart 
 from its cumbrous apparatus. These drawbacks will 
 have to be taken into account when the main question 
 comes to be dealt with — whether the Prussian method 
 suits American conditions better than any other. 
 
 Since the Prussian landschaft is in some quarters 
 explicitly held up as a model, it may seem desirable 
 specifically to consider its peculiar merits and demerits. 
 It was formed for large landowners only, at a time 
 when peasants were serfs, and large landowners — pro- 
 prietors of manors, rittergutshesitzer — were ipso facto 
 " estates " governing their province and magistrates in 
 their own right. (I myself should have been such if I 
 had not been disqualified from executing the functions 
 by being an Englishman.) Under such circumstances 
 a good deal of power might reasonably be entrusted to 
 these men. The general public — other than the pur- 
 chasers of bonds — need not be considered. All that 
 the legislative power — absolute at that time — needed 
 to take into account was its own position. Accordingly 
 it invested itself with very considerable powers, of nom- 
 ination of officers and supervision of business. That 
 point being safeguarded, it might safely entrust the cor- 
 poration newly formed with the quasi-judicial powers 
 already referred to, namely, of compelling people to 
 serve as officers and of foreclosing without legal process 
 on estates in arrear or failing to comply with the rules, 
 or else — which is in truth only another form of the
 
 226 CO-OPERATIVE CREDIT 
 
 same power — in minor cases to seize and administer 
 the property, like a receiver in bankruptcy. Tlie latter 
 is known to be a process far from beneficial to the prop- 
 erty " sequestered." A popular rhyme says : Se- 
 quester machen here Nester. It also appeared per- 
 fectly proper to provide the new corporation with an 
 administrative apparatus of a distinctly feudal type, 
 copied from the organisation of the " estates." Its of- 
 ficers hold high rank in the official hierarchy of the 
 country, from the Generallandschaftsdirel^tor down- 
 ward, who may be a " Prussian Excellency." Its ad- 
 ministering Council, irreverently spoken of by Ameri- 
 cans as " committee," is a tolerably august assembly, 
 in which it is counted a privilege to have a seat. The 
 valuers, familiarly described by Americans as " ap- 
 praisers," hold high rank as landesdlteste or ritter- 
 schaftsrdthe and wear a special uniform on official 
 occasions. All this apparatus makes the latidschaft 
 " go down " when exercising its peculiar privileges, to 
 which common men would scarcely be allowed to aspire. 
 It also has helped to impress the public, whose money 
 was sought. 
 
 Tliat was a long time ago. Since then the peasantry 
 has become emancipated. Traders and manufacturers 
 have found their way into the ranks of " manorial pro- 
 prietors " ; legal processes have been revised and short- 
 ened ; the volume of available money has greatly 
 increased ; the world has become a world of business 
 and everything has become modernised. Also land has 
 acquired a selling value distinct from its " agricultu- 
 ral " value.
 
 CO-OPERATIVE MORTGAGE CREDIT 227 
 
 One of the consequences of all this is that new land- 
 schaften have grown up, discarding much of what was 
 considered essential in olden days. Compulsory mem- 
 bership has been dropped, in a few cases also unlimited 
 liability — at the instance of the WUrttemberg land- 
 schaft, which first introduced the bold innovation. 
 Peasant property has been admitted to the privilege of 
 receiving loans — so far as it might choose to claim it. 
 However, in the main, the old feudal form has been 
 retained. The landschaft is still generally speaking 
 the big man's preserve. It retains the power of fore- 
 closing without process — which is safe (if it is so at 
 all) only in the hands of the big man. And its 
 method remains cumbrous. 
 
 Another consequence of the change which has taken 
 place in conditions is this, that other organisations have 
 sprung up by the side of the landschaft, which do prac- 
 tically the same business, but do it in a greatly modern- 
 ised form. And those institutions keep extending 
 their sway, and in truth outstrip the landschaft. In 
 countries with conditions similar to those prevailing in 
 Prussia, landschaften, more or less adapted, have been 
 tried and have more or less succeeded. So it has been 
 in Sweden, aristocratic country that it is, with many 
 large landowners, and no organisation at the time (in 
 1836) to lend them money in the shape of long term 
 loans. (There was a joint stock mortgage bank 
 founded in 1668, as we have already seen; but at the 
 time when the first modern landschaft was formed, in 
 Skaane, there appears to have been no institution of 
 the kind.) The Swedish landschaften have proved
 
 228 CO-OPERATIVE CREDIT 
 
 successful, but practically only as institutions for 
 large landowners, who have, by the way, found it de- 
 sirable to form a central landschaft (which is really a 
 Government bank), as a means of giving their bonds 
 the amount of currency required. That once more 
 has proved successful, in marked contrast with what 
 has happened in Germany, where the Central Land- 
 schaft, formed in imitation of the Swedish, twelve 
 years later, has proved an addled egg. So it is, once 
 more, in Austria and Hungary where, just as in Prus- 
 sia — indeed more so — Crown influence is potent and 
 magnate rule is in the ascendent. In Hungary the 
 magnate body ruling the concern (the founders and 
 their transferee successors) have in the assertion of 
 their supremacy gone the length of forming themselves 
 into a close corporation. A similar society, formed in 
 Galicia, more or less after the pattern of the Prus- 
 sian landschaften, has furnished the welcome proof 
 that the excessive centralisation practised in Germany, 
 which is one of the greatest blots upon the system and 
 helps to keep small landowners at a distance, is not by 
 any means indispensable. It has mapped out its wide 
 realm into a considerable number of districts, in each 
 of which it has placed an agent to " get hold of the 
 smaller folk," and has thereby secured for itself addi- 
 tional business. But even so it retains in the main 
 the true landschaft character of being a mortgage in- 
 stitution mainly for the squires. There have been 
 some offshoots also in Germany, even one in Southern 
 Germany (Wiirttemberg) — where the same feudal 
 development in the land system, which constitutes so
 
 CO-OPERATIVE MORTGAGE CREDIT 229 
 
 marked a feature in Prussia, and in the North gen- 
 erally, and which particularly favours the formation 
 of landsdiaften, has not taken place. The Wiirttem- 
 berg landscJiaft was the first institution of its kind to 
 substitute limited for unlimited liability, marking 
 thereby a further advance towards a more modern and 
 more businesslike state of things. And, of course, the 
 system has been adopted in the Baltic Provinces of 
 Russia, which are in character and habits German to 
 the core, and very " feudal." The nobility (who 
 mainly ov^m the broad acres) form a close corporation. 
 However, the success of these landscliaften — in 
 Esthonia, Livonia and Courland — as well as of a 
 cognate institution formed in Poland, has remained 
 small in comparison with the business done, not only 
 by the great institutions endowed and directed by the 
 State, but also with the " mutual " institution organ- 
 ised on different lines in Cherson, which has rapidly 
 extended its sway over three adjoining " governments," 
 and the joint stock mortgage banks, which do the larg- 
 est business of all. 
 
 The Prussian landscliaft cannot be said to be gain- 
 ing ground, at any rate in comparison with other in- 
 stitutions. It is rather yielding the pas to them. 
 Even in Germany landscliaften do only a minor pro- 
 portion of the business of corporate lending on mort- 
 gage, to say nothing of the large mass of mortgage- 
 lending still transacted, as heretofore, by private capi- 
 talists. Of about $3,000,000,000 standing out in 
 land bonds in Germany, Privy Councillor Hermes, 
 who for a long time was at the head of the Mortgage
 
 230 CO-OPERATIVE CREDIT 
 
 Department in the Prussian Ministry of Agriculture, 
 and must therefore rank as the most competent au- 
 thority, not long ago estimated that only $1,000,- 
 000,000 was issued by landschaften. (The joint stock 
 mortgage companies had at new year 1914 alone about 
 $3,000,000,000 outstanding in mortgages,) One 
 would think that of all institutions a landscliaft was 
 the least easy to wreck. Nevertheless the Credit 
 Agrarbanh in Russia, formed rather pretentiously on 
 landscliaft lines, with a right of doing business all 
 over European Eussia, was saved from going down in 
 1891 only by being taken over by the State-endowed 
 and State-directed " Bank for the Nobility." 
 
 The reason for such dropping behind of the genuine 
 landscliaft in the race is not far to seek. It is not 
 only that the landscliaft is cast in a very antiquated 
 mould, but its organisation and processes are cum- 
 brous and out of date, and the whole thing presents 
 itself as something of an anachronism. The very vir- 
 tues of the landscliaft seem to conspire against it, and 
 mark it out for disappointment. Its land bonds un- 
 doubtedly are a success. They constitute a highly 
 appreciated investment, such as every capitalist is 
 willing to take. They have in the stock and share 
 market even overtopped Government securities, and 
 their quotation is generally steady. However, the bor- 
 rower has to pay for this. In the first place the valua- 
 tion is out of all keeping with current land values. 
 From the lender's point of view that is a fault on the 
 right side. However, the landscliaft is a borrowers' 
 association, designed for the borrowers' benefit. There
 
 CO-OPERATIVE MORTGAGE CREDIT 231 
 
 is much gi'umbling on this score. In the next place, 
 that much praised amortisation by annual sinking 
 fund is not by any means universally appreciated. In 
 theory of course it is magnificent. It is in truth the 
 very raison d'etre of the landschaft. However, the 
 borrower very naturally desires to have all the money 
 that he can obtain on his security, and to have it at as 
 cheap a price as he can bargain for. Privy Council- 
 lor Hermes, already quoted as presumably the highest 
 authority, states (in the Handworterbuch der Staats- 
 wissenscliafteri) that hut for the compulsion exercised 
 hy the State it could not possibly have been carried 
 through. Indeed urban holders of real estate, to 
 whose business the Government wanted the same prac- 
 tice to be extended, have not without success rebelled 
 against it — notwithstanding that in its application to 
 house property it is really more urgently needed than 
 in its application to agricultural property, inasmuch 
 as such property is more rapidly fluctuating in value, 
 and owners are more mobile. But at this point, not- 
 withstanding Government's steady pressure, amortisa- 
 tion is distinctly receding. Owners of agricultural 
 property submit to amortisation because they mu^t. 
 But such provender does not really tempt them to the 
 landschaft crib. And, in point of fact, under land- 
 schaft rule the provision misses the main part of its 
 object. For mortgages are not amortised in the way 
 now so much praised up in America. After a certain 
 time the borrower who has been paying sinking fund 
 is entitled to increase his debt once more by the same 
 amount. That is only reasonable; for the security is
 
 232 CO-OPERATIVE CREDIT 
 
 there. And as a rule the borrower claims such right. 
 Therefore the real effect of amortisation is, in the 
 words of Consul Lehmann — who has made a study 
 of the matter — that amortisation in the best case acts 
 only as a temporary savings bank. Money goes in and 
 is drawn out again. Also, as Dr. Hermes explains, 
 the provision about amortisation was not by any means 
 adopted in the borrower's interest, but in the lender's 
 — to keep his security improving. That object like- 
 wise is defeated by the withdrawals. 
 
 With all this in view it cannot appear surprising 
 that agricultural landowners should have very con- 
 tentedly turned to other agencies for giving them 
 credit as, one after another, such offered their services, 
 and that they should, in certain instances, have com- 
 bined to organise for themselves somewhat more mod- 
 ern, freer, though equally useful institutions — in ad- 
 dition to continuing to resort in still goodly numbers 
 to the private capitalist who is, in Germany, far less 
 exacting in his requirements than corporations. He 
 does not, as a rule, insist upon a valuation. He finds 
 that he can easily enough ascertain sufficient for his 
 purpose by inquiry from people who know the prop- 
 erty. There is the land register; and there is the as- 
 sessment to land tax. And, mortgage loans being 
 common, previous indebtedness affords a fair clue to 
 the value of a property. And the private capitalist 
 does not limit himself to the "purely agricultural 
 value " of the property, but takes the selling value into 
 account. For, after all,
 
 CO-OPERATIVE MORTGAGE CREDIT 233 
 
 The intrinsic value of a thing 
 Is just as much as it will bring. 
 
 Also be does not by any means draw tbe line at first 
 mortgages or at balf tbe ascertained value of the prop- 
 erty. Mortgages are in request, and money is in re- 
 quest. So, as long as tbe value is considered good 
 enough, it is not supposed to matter whether tbe par- 
 ticular mortgage stands first or fourth or fifth. It is 
 true that tbe private capitalist does nothing towards 
 amortisation. He cannot. But, on the other band, 
 be lends more money, which, like tbe bird in the band, 
 is more bighly valued. 
 
 However, the most serious rivals to tbe landschaften 
 are not the private capitalists but the joint stock mort- 
 gage banks, a number of which were formed some 
 decades ago, because landschaften at tbe time actually 
 could not satisfy all the demand for mortgage credit 
 put forward. In truth joint stock mortgage banking 
 is older than tbe landschaften, as is shown by tbe in- 
 stance already quoted from Sweden, where a mortgage 
 bank was formed in 1668. In Germany tbe first mort- 
 gage bank formed for its own particular business was 
 tbe Kreditanstalt in Leipzig, formed in 1856. How- 
 ever, tbe public pawm broking establishments in 
 Brunswick and Altenburg began the practice severally 
 in 1765 and in 1792. In tbe later era it was the 
 French Credit fonder that set the tune. Since then 
 mortgage banks have multiplied fast and extended 
 their business greatly. They can do precisely what 
 landschaften do, but tbey do it on more businesslike
 
 234. CO-OPERATIVE CREDIT 
 
 and less cumbrous lines. And in Germany they have 
 gone one step further; for about fifty years ago they 
 established a Mortgage Exchange at Berlin, at which 
 mortgages are dealt in for all the world like stocks and 
 shares in the Stock exchange. 
 
 There was, at first, some prejudice against mortgage 
 banks. Landscliaften, so it was urged, work without 
 aiming at a profit, or obtaining one. Mortgage banks 
 distinctly lay themselves out for profit-earning, in order 
 to satisfy their shareholders. Hence it was argued 
 that they must be dearer in the rendering of their serv- 
 ices. As a matter of fact they are not so. And a 
 zealous pleader for the landscliaften in America, the 
 Hon. Myron T. Herrick, in his book " Rural Credits " 
 distinctly admits that they are not so. " This is due," 
 so he says, " to the fact that any advantage which the 
 landschaft may derive from the gratuitous service of 
 officers (the amount of which Mr. Herrick overrates) 
 and the compulsory service of members is offset by the 
 cumbersomeness of their bureaucratic methods and by 
 the superior energy of the officials of the companies, 
 who are spurred on by good salaries and the demand of 
 shareholders for dividends." That is quite true. But 
 there is considerably more. And it will be of some 
 interest to recall at the present time, while Americans 
 are pondering the question, the conclusions which a 
 Russian Commission of Inquiry arrived at in 1859 and 
 the sequels to its judgment. Foj, in spite of — of 
 course — very essential differences existing in the con- 
 dition of the two countries, there is, after all, some 
 similarity in the vast expanse of agricultural land to
 
 CO-OPERATIVE MORTGAGE CREDIT 235 
 
 be fertilised with money, and the newness of the pro- 
 posed and partially completed organisation of agricul- 
 tural credit. In both cases credit is gi-eatly wanted. 
 Landowners are throwing out feelers for it in all direc- 
 tions. And the new organisation, such as it is — 
 tentative at best — is endeavouring gi-adually to find 
 its bearings. 
 
 At the date named the gTeat historic reform of the 
 emancipation of serfs had been decided upon, and in 
 view of the impending heavy sacrifice to be demanded 
 of landlords, and the creation of much conamunal and 
 peasant land without the provision of money, the ques- 
 tion of new mortgage facilities became one of vital 
 importance. 
 
 The Commission had been appointed, in view of 
 the proposed abolition of the host of institutions — 
 " Agrarbanken " — maintained up to that time by the 
 Government, to consider what organisations it would 
 be most advisable to substitute. It had earlier at- 
 tempts made by the State — as observed, in an elemen- 
 tary way — before it, and also the example of the 
 Baltic mutual societies formed in faithful imitation of 
 the Prussian landscliafien of the older type. It argued, 
 very plausibly, just as people argue to-day, that the 
 work of a mutual or co-operative organisation being 
 done, not for profit, and some of it gratuitously, must 
 necessarily prove cheaper in the end than work done 
 by a profitseeking joint-stock company. And they 
 added to that — which is really far more to the pur- 
 pose — that a non-profitseeking organisation naturally 
 would not tout for business, and so detrimentally stim-
 
 236 CO-OPERATIVE CREDIT 
 
 ulate borrowing, because it would not matter to it 
 whether it had much business or little, whereas a profit 
 seeking joint stock company would be sure to use pres- 
 sure upon landowners to take mortgages, in order to 
 increase its business and add to its profits. (This is 
 not necessarily as sound reasoning as it seems. For 
 a non-profitseeking corporation must have a certain 
 amount of business, to make it self-supporting and it 
 will naturally seek to secure it. The expenses of land- 
 schaften, according to Herr M. Conrad's calculation, 
 works out — valuation and all — at about 3 per cent, 
 of the loan.) On the grounds stated the Russia Com- 
 mission reported in favour of " mutual " organisations 
 and, as a means of promoting such, drafted model rules. 
 Those rules were not issued, because for some reason 
 or other the Government did not approve of the Report. 
 It however practically endorsed the Commission's 
 recommendations and made its influence felt in favour 
 of the formation of " mutual " credit associations. 
 Such associations, however, would not form. When 
 one formed, some years after, at Cherson — being 
 destined to prove eminently successful — it was on 
 other lines than those recommended. That " mutual " 
 society — which has extended its business over three 
 adjoining provinces — was originally founded by the 
 zemstvo, or provincial government, which provided a 
 fund for starting it. Once more the Government used 
 its influence vigourously to promote the formation of 
 more such " mutual " banks, giving the several 
 zemstvos power to do like that of Cherson, and en- 
 couraging them to imitate its action. However once
 
 CO-OPERATIVE MORTGAGE CREDIT 2.37 
 
 more it stimulated in vaiu. And the Bodenkreditan- 
 stalt auf Gegenseitigheit, which had been formed (for 
 all Russia) in 186G, advisedly as a landschaft, on the 
 Baltic (that is, in substance, the Prussian) plan, did 
 not, as already shown, live long, but after twenty-four 
 years' life allowed itself to be absorbed by the Govern- 
 ment institution, the " Bank for the Nobility." In 
 Russia indeed, in its backward state, which for the 
 time keeps private initiative dormant, the State ap- 
 pears to be in practice the favourite provider of credit. 
 Its "Bank for the :N"obility " — " nobility " in this 
 application standing for the large and medium land- 
 0"\vners — has proved exceedingly successful. And so 
 has the " Peasants' Bank," likewise a Government in- 
 stitution, originally established to assist the newly 
 enfranchised but moneyless peasantry in the purchase 
 of their holdings, but now — according to M. Apostol 
 — destined to become also a mortgage bank in the or- 
 dinary sense of the word. State help by the way — be 
 it parenthetically observed — with all its general de- 
 fects, has likewise in some exceptional cases proved 
 distinctly beneficent in some of the smaller states of 
 Germany such as Hesse, Brunswick and some more, 
 in which on account of the restricted area a conscien- 
 tious Government is in a position to act in a real sense 
 paternally by its subjects, with the help of peculiarly 
 suitable machinery, which brings the officers of the lend- 
 ing institmtion into close proximity to the peasant own- 
 ers, so as to facilitate business and inspire confidence. 
 That is one of its rare triumphs. Prussia was de- 
 barred from applying similar methods, not only by
 
 238 CO-OPERATIVE CREDIT 
 
 reason of its incomparably larger size, but also by a 
 paragraph in its Constitution of 1850, which distinctly 
 forbids direct interference by Government. That par- 
 agraph had to be set aside in 18G6, in respect of the 
 newly conquered kingdom of Hanover and the elec- 
 torate of Hesse, both which territories already possessed 
 State interference institutions which could not well be 
 suppressed. In Russia, for the time being, the State 
 appeared the most appropriate provider of credit. But 
 at the very period spoken of joint stock mortgage banks 
 cropped up and soon carried on a roaring trade — so 
 roaring, and in consequence, so much to the detriment 
 of landowners (who were inveigled into taking unnec- 
 essary loans at high rates of interest), that the Govern- 
 ment felt itself called upon to interfere, limiting their 
 power and refusing to charter more. There are at 
 present ten. But those ten had on 1st January 1911 
 (the latest date available for a full comparison) 752,- 
 861,803 roubles outstanding in mortgage debts, in 
 respect of an area of 24,107,860 dessiatines (to which 
 should be added 154,171,000 roubles in Poland, making 
 917,032,803 roubles), as compared with only 83,915,000 
 roubles standing to the credit of three Baltic landschaf- 
 ten and 705,660,974 roubles (in respect of 15,995,785 
 dessiatines) to the " Bank of the Nobility " (including 
 the absorbed Bodencreditinstitut), 153,132,176 roubles 
 (in respect of 3,010,643 dessiatines) to the mutual 
 society of Cherson, and 1,005,546,283 roubles (in 
 respect of 12,950,466 dessiatines) to the "Peasants' 
 Bank." The two imitation landschaften in the Cau- 
 casus, formed after the Baltic example, at Tiflis and
 
 CO-OPERATIVE MORTGAGE CREDIT 239 
 
 Kutais, had 7,136,000 roubles outstanding. The 
 Peasants' Bank really cannot be brought into com- 
 parison with the other organisations, as a mere refer- 
 ence to the area with the amount of mortgage debt upon 
 it sufficiently indicates. Its figures stand for full 
 purchase, not one-half or three-fifths value mortgaging, 
 of the property concerned, as in the case of the other 
 bodies. Apart from this, the Peasants' Bank had in 
 its later years vastly extended its business, by the addi- 
 tion of new branches of work, such as the management 
 of the Imperial Apanage lands — to be by it converted 
 into peasant holdings — and the purchase of large es- 
 tates to be likewise parcelled out in peasant holdings. 
 In connection with these transactions it was specifically 
 authorized to take over mortgages standing in the name 
 of the Bank of the Xobility and joint stock mortgage 
 banks to its own name, and to issue, for the satisfac- 
 tion of demands made upon it, a large quantity of land 
 certificates. Accordingly much of the debt standing 
 to its credit is accounted for by the transfer from other 
 institutions and there was no difficulty about the pro- 
 vision of funds. 
 
 By 1st January 1914 the amount standing to the 
 credit of the Mobility Bank had increased to 852,120,- 
 000 roubles ; that due to the Peasants' Bank to 1,293,- 
 428,130 roubles; the debt due to the Baltic landschaften 
 had grown to 87,876,700 roubles; that to the Mutual 
 Society of Cherson to 202,035,900 roubles and that to 
 the joint stock mortgage banks to 1,294,174,900 roubles, 
 to which must be added the amount due to the joint 
 stock mortgage bank of Poland, standing at 179,874,-
 
 240 CO-OPERATIVE CREDIT 
 
 050 roubles and bringing up joint stock claims to 1,474,- 
 874,050 roubles in all. ^ The mortgage claims for the 
 two societies of Tiflis and Kutais had grown, very 
 rapidly, to 66,858,500 roubles. Barring the Peasants' 
 Bank, which, as observed, does not really deserve to 
 be brought into comparison, it is accordingly the joint 
 stock companies which distinctly " take the cake." 
 Between 1904 and 1911 their business had increased by 
 14 per cent., as compared with a decline of 18.5 per 
 cent, in that of the Nobility Bank and a negligible in- 
 crease in that of the Landschaften. The joint stock 
 companies have made mortgage business directed by 
 corporations popular and, by means of competition — 
 to which should be added also the safeguard of Govern- 
 ment supervision — substantially reduced the rates of 
 interest, which used to reach 12 per cent., and even 
 more, 10 per cent, being very common, to, generally 
 speaking, 4i^ per cent., the rate rising nowhere above 
 6 per cent. — exclusive of amortisation, which is of 
 course proportioned to the period of running. That 
 period is comparatively short in all these institutions. 
 Nowhere does it exceed 38 or 39 years, and as a rule 
 it ranges between 34 and 38. 
 
 The Russian Commission's argument — still very 
 frequently echoed elsewhere in the present day — is 
 indeed only partially correct. It is quite true that 
 business corporations, working for profit, are likely to 
 
 1 The official statistics a little obscure the facts, (excusably) 
 taking in 34 " mutual " mortgage societies, which are purely 
 urban, for house property, tlie bulk of whose businesses is 
 lumped together in Petrograd, Moscow and Odessa. TheSc Su- 
 cietiea show a moderate increase.
 
 CO-OPERATIVE MORTGAGE CREDIT 241 
 
 " tout " for business — since the more business they 
 do, the more profit are they likely to earn — and so to 
 incite landowners to borrow even improvidently. 
 That danger, however, is likely to be mitigated by com- 
 petition. But their work distinctly does not prove 
 more costly. And the reason is that in them competent 
 knowledge of business and business ways are pitted 
 against mere amateur work in the landschaften. The 
 men employed are not " squires," but skilled business 
 men. Their methods are business methods. And their 
 valuation is business valuation. The gentlemen ap- 
 pointed by the landschaften are very estimable gentle- 
 men, elected by their fellows, accordingly entitled to 
 confidence, and as a rule they know their own district 
 suSiciently well. But that is for the most part the 
 limit of their knowledge. They are bound by set, hard 
 and fast, rather old-fashioned rules, by which to value, 
 and they are responsible to the landscliaft for their 
 valuation. Hence the valuation under the landscliaft 
 invariably comes out extremely low, having no refer- 
 ence whatever to the selling value of the property. iSTo 
 wonder borrowers feel aggrieved. A joint stock com- 
 pany, operating over a wide district, in which it can 
 cultivate a large business, is in a position to employ 
 the most skilled valuers, familiar with valuation data 
 all over the country. They do not enjoy the same 
 social standing. They cannot claim the same honorific 
 title or dress for festive occasions in equally gorgeous 
 uniforms. But they can value for the whole country, 
 by a more widely accepted standard than that of the 
 district. And that adds distinctly to the circulation
 
 242 CO-OPERATIVE CREDIT 
 
 value of the bonds. Their principal is in competition 
 with other companies, accordingly they will have to 
 value fairly. And, notwithstanding the very modest 
 " compensation " allowed to valuers of the landscliaft 
 
 — which is nevertheless prized — the cost of company 
 valuers' work is, in view of continual employment in 
 valuing, in the end likely to prove less. 
 
 Landscliaft mortgaging, as has already been shown, 
 is not all of an ideal nature in its results. In the first 
 place, there is the habitual undervaluing, which natur- 
 ally enough landowners grumble at. But that can 
 absolutely not be helped, so long as a landschaft is a 
 landscliaft. Next there is the cumbrous process, which 
 is likewise not palatable to borrowers. Joint stock 
 companies, private capitalists — and it may at once be 
 added, genuinely co-operative societies — are not 
 equally bound by red tape. Then there is the obliga- 
 tion to repay which, like being virtuous, is admirable 
 in the theory, but has its inconveniences in practice. 
 The oversight demanded by the law and charters is 
 really not excessively irksome, since the administering 
 authorities naturally have a fellow feeling for borrow- 
 ers. The feudal character and the very limited degree 
 in which the laiidscliaft lending naturally commends 
 itself to small landowners — the very class in whose 
 interest easier credit is asked for in the United States 
 
 — no doubt constitute a distinct defect; they are in- 
 separable from the layidschaft as at present organised 
 — ■ as is admitted — in consequence of that body being 
 overcentralised, and accordingly altogether deficient in 
 diffusiveness and touch with the small proprietors, who
 
 CO-OPERATIVE MORTGAGE CREDIT 243 
 
 eye the distant corporation, so much above them, 
 askance. But they are not a hardship to the actual 
 borrower. However they grate greatly on the public 
 mind. The very small measure in which advantage is 
 taken of landschaft lending by small farmers in West 
 Prussia, where the landschaft was particularly re- 
 shaped to suit their requirements, has already been 
 noticed. Perhaps an even more telling proof of its 
 hindering effect is that met with in the province of 
 Brandenburg, in the very heart and centre of the work- 
 ing sphere of Prussian landschaften. Dr. Hermes 
 found that out of about 50,000 properties entitled to 
 be lent upon, only 5,300 actually had at the time made 
 use of that privilege. Nevertheless it may be assumed 
 that not a single one of them was unencumbered with 
 mortgages. That same disability does not attach to 
 other agencies. They can meet small owners' require- 
 ments well enough if they like. State mortgage insti- 
 tutions such as those already referred to existing in 
 some smaller States, such as Brunswick, Hesse and ad- 
 joining principalities, favour peasant owners above 
 others. Joint stock companies can lend upon small 
 properties, if they choose. As a rule they find it too 
 troublesome and prefer "hunting big game," while 
 there is such to be hunted. But the genuinely co-op- 
 erative mortgage societies, of which I shall still have to 
 speak, which have cast off landschaft trammels, lay 
 themselves out specifically for lending on small prop- 
 erties, and with excellent effect. 
 
 Once more, it must be regarded as exceedingly ques- 
 tionable whether that right accorded to landschaften.
 
 244 CO-OPERATIVE CREDIT 
 
 as an integral part of their working machinery, to 
 foreclose without judgment is in keeping with the 
 practices of modern time and should be entrusted to 
 a7iy corporation formed for business purposes. It is 
 scarcely constitutional. It makes the complainant a 
 judge in his own case. The latidscliajt, being a land- 
 scJiaft, could scarcely get on without it ; and in its own 
 case there are circumstances, already pointed out, 
 which may be held to mitigate the danger. In Prussia 
 the practice is of so long standing that people have in 
 a manner got used to it. But would it " go down " in 
 America ? And where, in America, are the men to be 
 with safety entrusted with acting as judges in their 
 own case, when the object is to get money repaid? 
 Wherever the trappings of feudalism have been 
 dropped, such privilege is found to be not at all neces- 
 sary. The joint stock mortgages companies have to 
 jog on without it and manage very well to do so. Even 
 the most faithful reproduction of the landscliaft, the 
 Bodcncreditinstitut in magnate-ridden Hungary, has 
 had to content itself with certain privileges ensuring 
 more expeditious hearing of their cases by the estab- 
 lished tribunals. And the Danish co-operative mort- 
 gage societies find a contractual engagement entered 
 into with their borrowers entirely sufficient. For 
 America certainly arrangements of this sort appear 
 preferable to that hard and fast right to ex parte 
 foreclosure. 
 
 It ought furthermore to be borne in mind that the 
 landschaften, if they have, on the one hand, made much 
 money available for agriculture — or rather for land
 
 CO-OPERATIVE MORTGAGE CREDIT 245 
 
 owning — are on the other hand in the first instance re- 
 sponsible for that most regrettable overburdening of 
 landed property with debt, which is at present one of 
 the most crying economic evils that Germany has to 
 struggle with. ilSTot that they directly favour it. Quite 
 the reverse. They draw the limit, as has been seen, 
 much too low to please borrowers. But they were the 
 first in the field to inaugurate systematic borrowing. 
 The French have a saying to the effect that it is only 
 the first bottle, which appears dear. Once that has 
 been washed do"wii, prudential considerations go by the 
 board. It is the same with borrowing on real estate. 
 A little more will make little difference; and it will 
 bring present relief. This evil ought not, indeed, to 
 be exaggerated. If, on the one hand, it is true, as the 
 head of an important imperial department pointed out 
 to me, namely, that there is scarcely an estate in Ger- 
 many which is not mortgaged, on the other hand W'hat 
 the late Dr. Buchenberger, at that time Minister of 
 Agriculture in the Grandduchy of Baden, and the orig- 
 inatoi? of an inquiry into agricultural conditions in Ger- 
 many which has furnished most valuable information, 
 told me a decade or two ago is pretty certain still to 
 hold good, namely, that much of the recorded indebted- 
 ness of real estate has in reality been paid off, being 
 allowed to continue on the record merely for conven- 
 ience sake, in order that in the event of a new loan 
 being required, the old deed may serve for the transfer, 
 saving fresh expense. But that proviso applies in the 
 main to peasant property. And peasant property has, 
 as has been shown, little enough to do with landschaf-
 
 246 CO-OPERATIVE CREDIT 
 
 ten, wliicli cater rather for the large landowners — 
 who have borrowed to such an extent that now the 
 landschaften themselves feel it incumbent upon them 
 to interpose endeavouring to cure the wound struck by 
 their own "Achilles' spear" with rust off the same 
 weapon. They offer to issue " demortgaging mort- 
 gages," which are to supply landowners with the addi- 
 tional money that they require, to clear off debt 
 contracted elsewhere, for a shorter term and at higher 
 rates both of interest and of amortisation, on condition 
 that the borrower engages himself not to raise any 
 more money upon the same property. It is much too 
 soon yet to say whether this rather ingenious process, 
 which has been tentatively resorted to in three provinces 
 is answering its purpose. Landowners naturally fight 
 a little shy of it, because it nullifies the little pledge- 
 able security that is left to them and so deprives them 
 of all further credit. From a natural point of view 
 what is particularly regrettable about such heavy in- 
 debtedness is that it was not really incurred for the 
 benefit of agriculture, but for the most part for im- 
 provident purposes, to keep a caste, which has become 
 almost an anachronism, in being a little longer for 
 jjolitical and military purposes. And it is the political 
 object of maintaining that caste of ultraroyalists who 
 supply the throne with a bodyguard and the army with 
 what is considered the most desirable type of ofiicers, 
 which makes the Government so very solicitous for easy 
 land credit. 
 
 At one time, when borrowing upon land had newly 
 come into vogue, there was such a run upon landschaf-
 
 CO-OPERATIVE MORTGAGE CREDIT 247 
 
 ten — then held in the highest regard — that they 
 could uot supply all the demand. That led enterpris- 
 ing capitalists to form joint stock mortgage companies 
 after the pattern — rather freely adapted — of the 
 French Credit fonder^ which was considered a great 
 success. Such companies were of course not allowed 
 to organise entirely in their own way. Sufficient Gov- 
 ernment supervision was forced upon them to make 
 their business prima facie safe. A proper balance 
 between mortgages and landbonds issued was insisted 
 upon. Mortgages must also not be made to pay a 
 higher interest than what was allowed to mortgagees. 
 And inspection, which has in many respects proved 
 valuable — was strictly enforced. The safeguards 
 adopted have not in every case proved a barrier to 
 failure, because — just as has happened in Eussia — 
 there was at times reckless speculation. Some sixteen 
 years ago, when Germany found itself immersed in a 
 crisis owing to the sudden withdrawal of much British 
 money wanted at home for the war in South Africa, 
 along with some other banks of good standing, four 
 pretty considerable mortgage banks came to a prema- 
 ture end. The fault of this lay, not with the funda- 
 mental principle of the institution, but with the insuf- 
 ficiency of the safeguards adopted. Generally speaking 
 the joint stock mortgage banks have done well. It has 
 been found that they can act with greater freedom and 
 discrimination than landscliaften, just because they are 
 simple business corporations working for profit and 
 nothing more, therefore free from red tape. That 
 profit has not been excessive. Competition has brought
 
 248 CO-OPERATIVE CREDIT 
 
 it down to something ranging between six and seven 
 per cent. The possession of a share capital — which 
 landschaften do without, except to a very moderate ex- 
 tent in the shape of an accumulated reserve fund — has 
 been found a distinct advantage, because it has enabled 
 the companies to safeguard themselves against the dan- 
 ger — which would presumably prove more formidable 
 still in America — oi " cornering," and " bulling " and 
 " bearing " by speculators among the public operating 
 with these bonds. It is on that ground the co-op- 
 erative mortgage societies, formed still more recently, 
 have likewise wisely provided for such capital. A com- 
 pany or society without capital would be at the mercy of 
 " cornerers." It is no more than was to be expected 
 that the business most rapidly developed by joint stock 
 companies should have been in mortgages on house 
 property. House property in Germany has no land- 
 schaften to borrow from, and its mortgage business 
 was at the time least organised. Such business has in- 
 creased rapidly and largely. Dealing with house prop- 
 erty is considerably easier for a company with an urban 
 centre. On agi-icultural land la^idscJiaften were in 
 possession and the powers that favour them did not fail 
 to point out to the public that their service is virtually 
 gi-atuitous. Experience has exploded the myth of its 
 being therefore cheaper. And in the South, where 
 feudal institutions do not exist, and consequently there 
 are (with one or two exceptions) no landschaften, joint 
 stock companies soon managed to find a market in agri- 
 cultural business, which market is extending. 
 
 However joint stock companies are not by any means
 
 CO-OPERATIVE MORTGAGE CREDIT 249 
 
 the only alternative to landschaften. Landschaften 
 adopted a kind of co-operative principle according to 
 eighteenth century conceptions. ISTearly a century and 
 a half have passed since then, and co-operative prin- 
 ciples have been perfected. It has been found that 
 there is no need for " that rascal the State," (der EacTcer 
 von Staat) — as the great Frederick called it, complain- 
 ing of the many demands made upon its purse — poking 
 its nose into matters of pure business. It never does 
 so without spoiling something or other. And so, by the 
 side of the landschaften, new co-operative bodies have 
 sprung up, rendering the same services on genuinely co- 
 operative lines. The motive which prompted to their 
 creation was either this, that in the particular circum- 
 stances there was no other body to offer the same ser- 
 vice, or else that, the ground having been cleared, by 
 other agencies, landowners came to consider that they 
 might do things more cheaply or more conveniently for 
 themselves. 
 
 The Danish co-operative mortgage societies deserve 
 to be cited as the best instance of societies coming under 
 the first of the two heads. Denmark is a country of 
 small properties, the number of which the Legislature 
 has advisedly taken means to increase considerably at 
 the cost of large, by giving special facilities for subdivi- 
 sion and acquisition. Naturally, the small owners re- 
 quired credit ; because without that their holdings were 
 worth nothing to them. And about 1850, when the new 
 departure came to be decided upon, there was no institu- 
 tion to provide such. Therefore, driven into a corner, 
 farmers in Denmark resolved to take a leaf out of the
 
 250 CO-OPERATIVE CREDIT 
 
 book of their northern neighbours (the Swedes) just as 
 the latter had, in 1836, taken one out of the book of the 
 Prussians, only in Sweden for a very different class of 
 o^vners, mainly owners of large estates, like the Prus- 
 sian ju7ikers. Just as the Swedes had " adapted " the 
 Prussian landscliaft, the Danes adapted the Swedish 
 " society," so as to make it issue from the process in an 
 altered shape. The Legislature in conferring the ne- 
 cessary powers granted without demur what was asked 
 for and what on the surface seemed safe, abstaining 
 throughout — except in later time in two quite special 
 instances — from affording assistance in money. I see 
 that Mr. Herrick ranks these societies as a variety of 
 " landscliafien." But they are distinctly of a different 
 order. There is a different spirit breathing in them. 
 All those feudal paraphernalia of the landschaft have 
 been cast off, and the feudal spirit has gone with them. 
 A Prussian landowner, doing business with his land- 
 scliaft, feels as if he were doing business with a body 
 outside himself, having distinct interests, which lays 
 down conditions such as he has to comply with, if he 
 would have and would retain the loan. The Danish 
 farmer feels that his society is distinctly his own, with 
 the same interests, an institution created and managed 
 by himself as fully as is his co-operative dairy or his 
 egg-selling society, and that it is to his own interest that 
 he should carry out the conditions which he himself has 
 been a party to imposing. A rather telling instance of 
 this modernised organisation is to be found in the fore- 
 closure provisions. The landschaft under its charter 
 has the right ipso facto to foreclose of its own motion.
 
 CO-OPERATIVE MORTGAGE CREDIT 251 
 
 without a judgment of the Court. The Danish society 
 is given the power of contracting with its borrower for 
 the same right, he being a consenting party, who indeed 
 surrenders all claim for a stay of execution by notice of 
 appeal, but on the other hand distinctly retains the right 
 to seek redress at law in the event of wrong being 
 shown, after the event. These societies must, of course, 
 before presuming to act, obtain a charter from the Gov- 
 ernment — which charter is in every instance given for 
 a certain marked off district, provided that they can 
 ab initio show sufficient business to warrant their recog- 
 nition, and if they submit to the Government conditions 
 which in the interest of lenders — that is, holders of 
 landbonds — include that of rigid inspection by the 
 Crown. The Crown also reserves to itself the right of 
 suspending a society or winding it up, should occasion 
 arise. But, apart from that, all is self-help. Members 
 are put upon their responsibility. The administration 
 is their own, and it is democratic. The main points are 
 laid down in the Government charter. Supreme power 
 must in all cases be vested in the general meeting of 
 members; which must be held at least once a year. That 
 meeting has to decide whether there is to be a new issue 
 of bonds and at what rate of interest, and to elect its 
 executive committee of three — one of whom must be a 
 skilled builder (for buildings come into account) — 
 and its council of supervision, which stands above the 
 committee, of optionally from five to nine members. 
 There are also some other points reserved for its judg- 
 ment. The Committee of course carries out the execu- 
 tive business of the society, and the Council supervises
 
 252 CO-OPERATIVE CREDIT 
 
 and holds the Committee to account, under the inspec- 
 tion of Government, which is a matter per se. There 
 is a departure from ordinary co-operative practice in 
 the matter of voting, which however appears justifiable 
 under the special circumstances. Voting is bj shares, 
 to this extent, that a holding of 10,000 crowns (about 
 $2,600) entitles to one vote, another vote being added 
 for every further 20,000 crowns, until the maximum of 
 five votes is reached. A decidedly objectionable feature 
 in one or two societies of the sort is that the bondholders 
 are allowed presence and votes at the general meeting. 
 (This occurs also in som,e of the Eussian " mutual " 
 societies, e.g., that of Chersou). To make sure that 
 the bookkeeping is accurate and true to facts, the Gov- 
 ernment reserves to itself the right of nominating one 
 of the two statutory inspectors of accounts and making 
 the nomination of the second subject to its approval. 
 These two inspectors have, however, no voice in the 
 actual management. The management is left altogether 
 in the hands of the members themselves. Only in two 
 cases of a very special character — in which business 
 had to be taken up as pioneer work of questionable re- 
 munerativeness — has the State assisted with money. 
 In those two cases it has, in return, reserved to itself 
 the right of nominating the chairman, who becomes a 
 sort of watchdog. Otherwise the State has assisted only 
 by remission of fees, of stamps and the like. 
 
 The general rules for valuation are in the Danish 
 societies the same as those laid down for valuation for 
 public bodies investing in mortgages. But it is a con- 
 dition that in every case there must be two valuers,
 
 CO-OPERATIVE MORTGAGE CREDIT 253 
 
 and in respect of some valuations the three directors 
 reserve to themselves the right of carrying out an inde- 
 pendent checking valuation. Mortgages may be given 
 up to three-fifths of the ascertained value of the prop- 
 erty. Should such mortgage be issued, all members are 
 made to join in a collective bond for liability up to the 
 full value of the mortgaged property. Should the mort- 
 gage be for less, their liability becomes proportionately 
 reduced. But, whatever be the point so fixed, up to that 
 point their liability is collective, one for all, and un- 
 limited. As a matter of course bonds may be issued 
 only to the amount represented by the mortgages granted. 
 But there is no strict requirement to redeem the bonds 
 in precisely the same ratio that mortgages are paid off. 
 In some cases mortgages have been issued for sixty years 
 and the corresponding bonds made redeemable in sev- 
 enty. There is also a special clause authorising delay 
 in redemption in emergency cases — with the Govern- 
 ment's approval — which expedient has been resorted to 
 only in one instance. Bonds must be " negotiable " 
 and may not be issued for smaller amounts than 100 
 Danish crowns (say a little over $25) each. Where 
 they are held in tolerably large blocks, say 20,000 
 crowns, in one hand, they may at the holder's request 
 be " inscribed " -or " registered " to his name. They 
 may also otherwise be issued in certain names; but as 
 a rule they are " to bearer." Although 100 crowns is 
 the minimum limit, bonds may be, and are, issued to 
 much larger amounts, up to 5,000 cro^vns and possibly 
 more. The rate of interest is fixed according to the state 
 of the money market. There are now 31^ and 4 per
 
 254, CO-OPERATIVE CREDIT 
 
 cent, bonds. ISTot very long ago the 3^ per cents, were 
 quoted above par. The rate of interest for mortgages 
 corresponds to that for bonds, and amortisation is higher 
 or lower, of course, according to the time allowed for 
 running. The bonds are issued in series, each series 
 covering about ten years in point of time, and from 50 
 to 60 million crowns in amount. The series arrive at 
 maturity in chronological order, but are now almost 
 by preference " bought in." It is for the general meet- 
 ing to decide in what precise manner redemption is to 
 take place. Seeing that in the matter of immediate lia- 
 bility each series stands for itself, and the borrowers who 
 compose it are responsible, that does not at first glance 
 appear an altogether equitable arrangement. However 
 the charter does not mention " series," but makes all 
 members equally responsible for default, at any rate in 
 the last resort. Also in the absence of share capital — 
 which may prove an inconvenience on this ground, lia- 
 bility has to be made to lap over from one series to 
 another, till the new series has acquired sufficient 
 strength to stand by itself. That is a weak point in 
 the armour of these Danish societies. Fortunately for 
 them there have been no " cornerers " thus far to take 
 advantage of it. Apart from such overlapping liability, 
 something like two per cent, of the mortgage is kept back 
 on issuing it, to provide funds for carrying on. Should 
 that two per cent, not be entirely absorbed by outgoings, 
 the balance, going automatically into the reserve fund, 
 goes back indirectly to members, who in addition are 
 required to pay 1-10 per cent, towards management 
 expenses. The reserve funds are not actually very large.
 
 CO-OPERATIVE MORTGAGE CREDIT 255 
 
 There are however some windfalls to increase them. It 
 is provided that as soon as a reserve fund reaches 4 or 6 
 per cent., as the case may be, of the amount of the lia- 
 bilities, its annual over plus is thenceforth to be em- 
 ployed for purposes of redemption be it by drawings or 
 be it by buying in. 
 
 In this manner the dozen mortgage societies existing 
 in Denmark have raised, cheaply and effectively, at the 
 rate of about $20,000,000 a year, close upon $200,000,- 
 000, which is more than the entire ISTational Debt of 
 the little kingdom. Considering the comparative pov- 
 erty of the soil, that is a large amount. And it has 
 proved of most substantial help, more particularly to 
 small owming farmers, presumably of the same financial 
 status that America is desirous of rendering assistance 
 to. There is not much fear in their case of the money 
 raised on mortgage being misemployed. And one fea- 
 ture which ought to rank as a special recommendation 
 is, that the landbonds issued command a ready market 
 even outside the country itself. They are gladly bought 
 up in Germany. Indeed, they are as a rule issued 
 simultaneously in Kopcuhagen and Hamburgh. And 
 there is some prospect of the market being extended 
 to France, if indeed, that has not yet come about. 
 
 One other point wants calling attention to. For 
 the most part these societies do business purely in respect 
 of agi-icultural property. But there are a few which 
 advance money also on the security of house property, 
 one exclusively so. There is no inherent reason why 
 owners of houses should not join together in precisely 
 the same way as do owners of agricultural land, to
 
 256 CO-OPERATIVE CREDIT 
 
 obtain cheap mortgage credit for themselves. They do 
 it in Eussia. However the business is certainly more 
 risky, because fluctuations in value are greater and more 
 frequent, and because house property is exposed to more 
 serious dangers than mere land. Indeed the only mort- 
 gage society of the sort described in Denmark, which 
 has come to grief and has had to be wound up, was one 
 which made advances on houses. A great crisis oc- 
 curring in 1857 produced general serious embarrass- 
 ment. The owners of the houses pledged felt the pinch 
 and could no longer respond to their engagements. 
 By its rules the society was compelled to sell them up, 
 though in the face of a market necessarily without bid- 
 ders. The houses were knocked down for a song and 
 the societv's balance sheet of 1860-61 disclosed a deficit 
 of a round million (of crowns), which of course settled 
 the question of winding up. 
 
 As a type of the second order of co-operative mortgage 
 societies, that is, those which take up mortgage business 
 after the way for such business has been planned, be- 
 cause they hope thereby to gain some additional ad- 
 vantage, the Landwirtschaftliclier Kreditverein im Kon- 
 igreich Sachsen wall serve as a good example. There 
 are two other societies in Germany which claim to figure 
 in the same order, one in Bavaria, the other in Hesse. 
 However both have dipped a trifle too deep into the 
 State pocket and bowed a little too obsequiously to the 
 State Baal to be entitled to rank as quite purely co-op- 
 erative. The Saxon society has likewise received a 
 modicum of State assistance ; but that was only a mod- 
 erate amount — a matter of $187,000 — as an advance,
 
 CO-OPERATIVE MORTGAGE CREDIT 257 
 
 which was repaid within the first four years of its life. 
 Its only connection with the State now is, that a Com- 
 missioner of the Government is entitled to be present 
 at the sittings of the governing body, not to interfere, 
 but to watch. Since in return he certifies the bonds 
 issued as being covered by equivalent mortgages, his 
 presence may be said to be of distinct value, because it 
 ensures readier circulation of the bonds. The same reg- 
 ulation holds good with regard to the Bavarian society ; 
 but that society has received State aid, in the shape of 
 an advance of $250,000, free of interest on starting, in 
 addition to a further million at three per cent., and an 
 annual grant of first $15,000 and later $10,000 towards 
 its management expenses, which grant has only recently 
 been withdrawn. Barring that difference, both societies 
 are framed on pr'^tty much the same lines, and their ob- 
 ject is the same, namely, to supply medium and small 
 landowners with mortgage credit as borrowers' societies, 
 at as cheap a rate as is possible, unrecallable on the 
 society's part and amortisable at a rate corresponding to 
 the period of running. The term " borrowers ' socie- 
 ties " requires qualifying. For both societies, having 
 discovered the value of possessing a share capital, where- 
 with to float new series and to face the attacks of 
 " bulls " and " bears " and " cornerers," admit non-bor- 
 rowers up to a limited proportion, that is, dwellers in 
 the district " desirous of furthering the movement," 
 who, in Saxony, must possess the further qualifications 
 of being either agriculturists by calling or else land- 
 owners in the district. This really is quite on a par 
 with the practice of British co-operative productive soci-
 
 258 CO-OPERATIVE CREDIT 
 
 eties which admit non-working shareholders for the sake 
 of their support and an addition to their working capi- 
 tal. Only in the lastnamed case it is hecoming usual to 
 admit non-workers, not as ordinary but as preference 
 shareholders or else debenture holders. The Danish 
 societies, working without capital, are under a necessity 
 of making holders of mortgages of one series liable for 
 a certain time for the liabilities of the next series, just 
 to set that series upon its legs. The two German socie- 
 ties are under no such necessity. They are also in a 
 position — the Saxon society at any rate has benefited 
 by it — to pay their mortgage loans out in cash, at the 
 quotation of the day, which is a convenience to the bor- 
 rowers. There is no fear of the share issuing power 
 being abused. Of course the societies make the taking 
 up of shares obligatory upon receivers of mortgage loans, 
 in proportion to the amount of each mortgage. Thus 
 in the Saxon society a borrower of $1,250 is required to 
 take up a $12.50 share, a borrower of $5,000 the double, 
 and so on, till the maximum amount of $375 is reached. 
 The limit used to be higher — $700 ; and at that time 
 there was no limit to dividend upon capital. As the 
 shares paid well, shareholders crowded in for the sake 
 of the dividend. However the society does not require 
 a very substantial share capital. Therefore the limit 
 was reduced to $375. In Bavaria it stands at $5,000. 
 The formation of the two societies was called forth by 
 the same need. Bavaria has no landschaften ; but it 
 has plenty of the small kind of agriculture, much of it 
 on very fertile land. Saxony possesses two organisa- 
 tions of the correct landschaft type. Like other land-
 
 CO-OPERATIVE MORTGAGE CREDIT 259 
 
 schaften they were found to be catering — and to be 
 able to cater — in the main only for large properties, 
 leaving the small farms, of which the number is very 
 considerable — the farming in Saxony being generally 
 of a high type — unprovided for. Accordingly a well- 
 meaning public man, who was eventually rewarded for 
 his beneficent doings with the title of " Excellency," in 
 1866, conceived the happy idea of applying the laiid- 
 schaft principle in a democratised form. Notwithstand- 
 ing the first set back occasioned by the great wars which 
 followed its formation — in 1866 and 1870 — the soci- 
 ety has done exceedingly well — so well that on one oc- 
 casion it has been able to surprise its members with a 
 present of $66,950 a year remission, by reducing the in- 
 terest on outstanding mortgages, from 4 to 31/^ per cent., 
 and that the gates of adjoining states have been readily 
 opened to it and it now caters not only for the kingdom 
 of Saxony, but also for the several Thuringian duchies 
 and also for adjoining parts of Prussia. The Bavarian 
 society had a wider range open to it from the beginning, 
 its country being considerably larger than Saxony. 
 
 Both societies have met with favours from their sev- 
 eral Governments, but — after those already recorded — 
 only such favours as are entirely legitimate. There are 
 remissions of stamp duties, fees and so on ; their bonds 
 are also recognised as trust securities — but there is no 
 privilege of summary foreclosure without judicial hear- 
 ing, such as to Anglo-Saxons must appear anachronistic. 
 
 The organisation of these two societies is, as ob- 
 served, fully democratic. Supreme power is in either 
 case vested in the General Meeting of members, which
 
 260 CO-OPERATIVE CREDIT 
 
 is by law required to be held at least once a year. It 
 is the General Meeting which elects the Council of 
 Supervision (Board), consisting, in Saxony, of fourteen 
 members, in Bavaria of only five — which is too few. 
 In Bavaria it is also the General Meeting which elects 
 the Executive Committee, consisting of four members. 
 In Saxony the duty of electing the Committee, composed 
 of only three members — to whom, as in the Schulze- 
 Delitzsch societies, much power is entrusted — falls to 
 the Council of Supervision, which — in both cases — 
 stands above the Committee. The remarkable success 
 of the Saxon society is particularly attributed to the 
 happy selection of well qualified Committeemen, which 
 appears to be a result of nomination by a smaller but 
 more highly competent body than the General Meeting. 
 As already observed, a nominee of the Government in 
 either case attends the sittings of the governing bodies 
 with a " watching brief " and the duty of certifying 
 bonds. And of course there is inspection of the 
 accounts. 
 
 In the Saxon society, since that was registered before 
 the passing of the Co-operative Act of 1889, which was 
 the first measure to authorize limited liability in Ger- 
 many, liability continues nominally unlimited. But 
 affairs are so managed that everybody knows that no lia- 
 bility beyond the value of the share is likely to become 
 effective. In the Bavarian society, which was formed 
 much later, under the 1889 Act, liability is limited to 
 the decuple of the value of the $25 share. 
 
 Both societies take good care to bring their ministra- 
 tions well within reach of the landowners scattered over
 
 CO-OPERATIVE MORTGAGE CREDIT 261 
 
 the country, by cutting up the territory into compara- 
 tively small sections and placing agents in these. In 
 this way the Bavarian society, which operates over a 
 wide district, maintains an army of not less than about 
 a thousand agents. The Saxon society has not so many. 
 But its district is well provided with local representa- 
 tives, whose duties consist in more than simply sitting 
 still and waiting for applicants. They are to canvass, 
 to make the facilities offered by the society known in 
 such ways as are open to them, to secure members ; and 
 they may also collect savings deposits. The society has 
 taken power to receive such. It does not however set 
 much store by this and in preference canvasses for the 
 formation of Eaiffeisen societies. 
 
 The Saxon society gTants mortgages up to three-fifths 
 of the value of properties, the Bavarian only up to one- 
 half. In either case only first mortgages are agreed to. 
 In both cases however the valuation is conducted on 
 more liberal lines than under landschaften. The Saxon 
 society's valuation is to be for " agricultural value " 
 only — that is, however, for such price as a cultivating 
 owner would be held justified in paying, which is more 
 than the " agricultural value " of the landschaft. Pro- 
 vided that the borrower is willing, the two societies also 
 accept the valuation of the property for landtax as 
 standard, multiplying the amount of " assessment 
 units " by forty. Some landscliaften likewise offer to 
 estimate the value of j)roperties to be mortgaged by land- 
 tax; and the inconvenience of their having different 
 standards of valuation is shown by the difference in the 
 multiplicator applied to that tax. Thus the Schleswig
 
 262 CO-OPERATIVE CREDIT 
 
 Holstein landscliaft multiplies the assessment by twenty, 
 the West Prussian by twenty-two. Should a borrower 
 refuse valuation by " assessment unit," valuation takes 
 place by the society's valuers, with due consideration 
 for any official valuation for other purposes that may 
 exist. These valuers must by rule themselves be mem- 
 bers of their own society so as to share in the common 
 liability, and also be " practical men." The practice 
 in the Bavarian society is very similar. However that 
 society leaves itself somewhat gi'eater latitude in con- 
 sideration of the narrower limit set, making recognition 
 of the " agricultural value" only the " ordinary rule." 
 It includes buildings in the valuation, which the Saxon 
 society excludes — they being otherwise provided for 
 under the law of the land; also standing timber and 
 industrial establishments connected with the property, 
 such as potato distilleries, sawmills and the like. Val- 
 uations are generally admitted to have been fair. In- 
 deed the marked success of both societies testifies to 
 this. The valuers are not similarly " big pots " as those 
 employed by the landscliaften, but they are distinctly 
 better suited to their humbler business, and inspire 
 greater confidence in those with whom they have to 
 deal. 
 
 Most of the business done is on the amortisation 
 principle. But both societies also have power to con- 
 tract for shorter termed loans, not subject to amort- 
 isation, but subject to notice, just like the landschaften. 
 And they may make loans of either sort to public 
 rate-levying bodies. Amortisation, when it takes place 
 — which is in the gi-eat majority of cases — proceeds
 
 CO-OPERATIVE MORTGAGE CREDIT 263 
 
 on fixed principles which have come to be understood. 
 The Bavarian society allows amortisation at annual 
 rates varying from ^ to 6 per cent., and issues tables 
 which show at a glance how much in each case will 
 have to be paid and for what length of time. The 
 Saxon society as a rule levies 9-10 amortisation, which 
 allows for an additional 1-20 to be added for manage- 
 ment expenses, to make up a full I/2 per cent. 
 
 As already intimated, in the case of either society 
 success has been marked and the result shows that where 
 circumstances are suitable, the same advantages for 
 which as a rule landschaften are prized are obtainable 
 without all the overdignified paraphernalia of an anti- 
 quated institution endowed with feudal privileges and 
 indulging in anachronistic red tape. 
 
 There is another type of genuinely co-operative mort- 
 gage credit organisation to be met with in Europe that 
 is deserving of mention. The Belgian Boereiibond, a 
 group of agricultural co-operative associations of a dis- 
 tinctly denominational character — strongly Eoman 
 Catholic — led to a great extent by its parish priests, 
 but otherwise representing a pure type of Kaiifeisen 
 Co-operation — mainly, but not by any means solely, 
 for credit — has already been spoken of. That union 
 of associations, which in matters of credit has reverted 
 to, or preserved, a position of independence of State aid, 
 some years ago determined to perfect its organisation 
 by instituting a special service for mortgage credit, for 
 which a great desire had been expressed among its 
 members, in order to meet as far as possible all the 
 various wants of its agricultural members. Wisely and
 
 264. CO-OPERATIVE CREDIT 
 
 prudently it resolved to keep siicli service entirely sepa- 
 rate from its organisation for personal credit. The 
 funds and liabilities of the two services are never mixed 
 up. 
 
 The idea upon which the scheme is based is one 
 which has long since found gTeat favour with theorists 
 and has repeatedly been recommended for execution, 
 among others by so high an authority as the late Dr. 
 Buchenberger. Its two main features are: centralisa- 
 tion in the issue, decentralisation in valuation and re- 
 sponsibility. It was first suggested by the success of 
 Raiffeisen societies. Here are these societies, so it was 
 argued, strictly localised and composed of the best mem- 
 bers of the local community. Who is there that is so 
 competent to value correctly a local landow^ler's prop- 
 erty and to judge whether he himself is under the 
 circumstances deserving of receiving the loan ? One 
 thought suggesting this is that frequently put forward, 
 the justice of which there is no disputing, namely, 
 that whereas the large landowTier can well afford to 
 negotiate for a mortgage loan with a centralised body 
 at a distance from himself, the small man imperatively 
 requires the mortgage institution to be brought near to 
 his farm. If there should be any fear of the local 
 valuers favouring their neighbours by putting his 
 farm at too high a value, that danger would appear to 
 be effectually neutralised by the liability in respect of 
 the valuation attachino^ to the local societv. That is 
 the other point in the reckoning. By such means 
 the central society, which furnishes the funds, is to ob- 
 tain a collective guarantee of all local members, to
 
 CO-OPERATIVE MORTGAGE CREDIT 265 
 
 shield itself. The loan itself would have to be paid out 
 by a central institution, which alone would be in a 
 position to issue landbonds with any prospect of suc- 
 cess. The local society would have in each case to re- 
 port to headquarters upon the property, making itself 
 answerable, at the back of the pledge. 
 
 The Boerenhond has its central bank at Louvain, 
 which up to the outbreak of the war was well able to 
 provide the required funds to be obtained by the issue of 
 bonds. Under the scheme in force it is in addition au- 
 thorised to act directly in respect of properties situated 
 in localities in which there is no local society. In such 
 cases the Central Bank values as well as pays and takes 
 the sole responsibility — all at a slightly higher rate 
 than where the local society intervenes. The Boeren- 
 hond repays itself by amortisation, but has fixed the 
 time for repayment at a much smaller number of years 
 than do the landschaften and the French Credit fonder. 
 It holds — like some people in the United States — that 
 every generation should be made to clear off its own 
 liabilities, and therefore insists upon repayment within 
 twenty-nine years at the outside, which of course in- 
 creases the figure for the annual amortisation. 
 
 It is at the present time still much too soon to say 
 whether this scheme — which was most cordially ac- 
 claimed by the members on its introduction — has met 
 with sufficient success to warrant its adoption elsewhere. 
 The Boerenhond itself appears satisfied with the modest 
 results thus far obtained. It is, the war apart, pecul- 
 iarly well situated in the matter. " Catholic " capital- 
 ists, in a country in which " Catholicism " is a fighting
 
 266 CO-OPERATIVE CREDIT 
 
 force continually trying conclusions with Socialism and 
 Unbelief, are not likely to allow an avowedly " Catho- 
 lic " enterprise to go a-begging. It is in very truth one 
 of their own fighting weapons. They have taken up the 
 bonds readily at a very moderate rate of interest, to 
 wit, 31^ per cent. But it must be evident that in the 
 open market bonds so issued are likely to have much 
 less of a chance. To begin with, assuming that the 
 members of the local Raiffeisen society are the best 
 judges and valuers in each case, and recogTiising the 
 fact that they are bound in unlimited liability — which 
 supplies, we will say, a safe pledge — what guarantee 
 is there that their society will continue, and be equal 
 to its liability, to the end of the term ? Members may 
 go out as they please and the entire society may decide 
 to wind up. The same objection attaches to the Cen- 
 tral Bank, in which liability is limited, and which may 
 likewise wind up long before its bonds are redeemed. 
 The seeming improbability of such an outcome cannot 
 be held sufficient guarantee for a man who parts with 
 his money. The Raiffeisen society, so it may be added, 
 is equal to a certain amount of liability. However 
 that liability cannot be indefinitely extended. The 
 horse that comfortably carries one man may break down 
 under two. 
 
 A scheme very similar to that of the Boerenhond 
 was some time ago submitted to the Union of Raiffeisen 
 societies, then still at Neuwied, by the Rhenish " Land- 
 bank." Similar feelers have in fact been throAvn out 
 repeatedly by laiidscliaften. The " Landbank " was 
 to act as Central Bank, providing the money and issuing
 
 CO-OPERATIVE MORTGAGE CREDIT 267 
 
 the bonds. And the local Eaiffeisen societies were to 
 become its feeders, carrying out the valuation and mak- 
 ing themselves liable for local losses. After some re- 
 flection — for the scheme had its attractive points alike 
 for capitalists and for farmers — the ISTeuwied Union 
 came to the conclusion that in agreeing to such a scheme 
 its societies would be overstepping the limits of their 
 proper province, and declined. Obviously, in spite of 
 some outward appearance of similarity, the task pro- 
 posed to the societies would have been of a very dif- 
 ferent character from that for which they were formed. 
 Small men though the members be, they can undertake 
 to make themselves answ^erable for short term loans, be- 
 cause they can watch the borrower and day by day con- 
 trol the emplo\^nent of the loan. When it comes to 
 mortgages, they can do nothing of the sort. The ques- 
 tion of employment does not arise. There is a liability 
 for a comparatively large simi, which may become ef- 
 fective in a lump all at once. It must also appear 
 highly doubtful whether a body like the Boerenhond's 
 Central Bank, unsupported by zealous party feeling, 
 such as is willing to run risks, would be able to place 
 the bonds which it might be ready enough to issue. 
 
 Enough has probably been said to make it clear that 
 there are a variety of ways open for organising mort- 
 gage credit, some of them co-operative, but failing to 
 fall into the inconveniences of landschaft credit. 
 There may be other ways still. At any rate here is a 
 variety already, among which to make a choice. Of 
 the co-operative schemes the Saxon and the Danish ap- 
 pear to deserve the preference. They are co-operative
 
 268 CO-OPERATIVE CREDIT 
 
 and they are in keeping witli modern conditions. If 
 thej do not possess all the dignity and privileges of the 
 Prussian landschafien, they have shown themselves 
 fully as effective. Attention should more particularly 
 be called, incidentally, to the power which the Saxon 
 society has shown itself to possess, of reducing the rate 
 of interest on running mortgages. That seems unlikely 
 to happen in the case of a landschaft. 
 
 There is another point to be taken into consideration 
 affecting the choice between a landschaft and some 
 other organisation. All organised mortgage credit of 
 such sort as has been reviewed is rendered dithcult in 
 the United States, as well as in the United Kingdom, 
 by the absence of compulsory registration of title, on 
 which in truth all the schemes reviewed are based. 
 They apply where there is no difficulty about title, 
 where no searching into deeds and preparation of " ab- 
 stracts " are necessary, but w^iere real estate is simply, 
 cheaply and absolutely conveyed by a mere entry in the 
 register, as under the Torrens system. That makes 
 an enormous difference in dealing with real property. 
 Our antiquated English and American system makes 
 conveyance of land the Tom Tiddler's land of lawyers, 
 which accounts for the stubborn opposition offered to 
 its improvement. We have made an attempt in Eng- 
 land to introduce general registration of title gTadually. 
 An act of 1897 authorises County Councils to introduce 
 compulsory registration within their area. Thus far 
 however only one county has taken advantage of such 
 authority, and that is the wholly urban county of Lon- 
 don. Such as the existing state of things is, how-
 
 CO-OPERATIVE MORTGAGE CREDIT 269 
 
 ever, a body other than a laridschaft (which could not 
 depart from its hard and fast rule) whether it be a 
 private capitalist or a co-operative society in the hands 
 of its own members, or a joint stock company governed 
 by a Board — w^ould have less difficulty, with its more 
 elastic organisation, in adapting itself to what prevails 
 than the landschaft itself. Such lender may make al- 
 lowances, as in fact private capitalists now do, and be 
 satisfied with what appears to it or him to be con- 
 vincing proof of the good quality of the title. In prac- 
 tice probably the risk so incurred would not be great. 
 But it would be an enormous help to the organisation 
 of real estate credit, if the United States could adopt 
 the Torrens system, as several states have tried to do, 
 being overridden by a decision of the Supreme Court, 
 which pronounces such move contrary to the Constitu- 
 tion. Therefore if you want to have well organised 
 mortgage credit in the United States, I should say that 
 the way to that goal ought to lie across the Torrens 
 system. 
 
 Whether the United States are economically ready 
 at the present time for the adoption of a co-operative 
 scheme is another matter. And it is the answer to 
 that question obviously which must decide the problem. 
 To the present writer the point appears doubtful. 
 Those European co-operative schemes have found homes 
 in countries in which there is a thoroughly settled rural 
 population, in which conditions of holdings, value and 
 the like are also settled. There are comparatively few 
 changes there that take place. No properties are 
 abandoned. The population is not shifting. Societies
 
 270 CO-OPERATIVE CREDIT 
 
 know that in the main the same membership will con- 
 tinue for an indefinite time. Therefore a society could 
 count upon stability and holding together. Members 
 in it are known to one another and keep in close touch 
 with one another. Values have long since found their 
 level. The market, too, has become settled. Land- 
 bonds have conquered a place for themselves, which dif- 
 ferentiates them greatly from Argentine cedulas and 
 the like. Now do these same conditions apply to Amer- 
 ica ? The answer seems doubtful. It rather looks as 
 if the ground for co-operative mortgage credit had still 
 to be prepared. You want to do the rough work — 
 plough and harrow, it may be subsoil plough and drain, 
 and roll, and crush the clods — before you can attempt 
 to sow the co-operative seed. Co-operation is a most 
 effective instrument. But it has its distinctly delicate 
 points. It is absolutely dependent upon assured safety. 
 Then had not the first rough work best be left to the 
 more robust force of Capitalism, which knows how to 
 adapt itself to uncertain circumstances ? The private 
 lender proportions the rate of interest for which he 
 asks to the risk which he considers that he runs. A co- 
 operative society could not do that. The capitalist 
 also knows how to adapt his demand for guarantees to 
 each several case. He treats indeed, every case per se. 
 Capitalist institutions of modern type have rendered 
 very useful service in the matter of lending on mort- 
 gage. They work for profit. However the very quest 
 of their profit has taught them how to economise work- 
 ing expenses, by the selection of the fittest officers and 
 the study of the most businesslike arrangements, so as
 
 CO-OPERATIVE MORTGAGE CREDIT 271 
 
 to enable them to lend no more dearly than Iwndschaften 
 and with far greater elasticity. Would it not be more 
 advisable to allow institutions of this sort — it may be, 
 side by side with ]Srational Banks, which have some 
 scope still for engaging in such business — to act as 
 pioneers, explore and prepare the ground, leaving Co- 
 operation to come in later — as it has in effect done in 
 Saxony and Bavaria — to improve, so to put it, the 
 produce of a more robust wild tree, by the graft upon 
 it of sprigs of better plants ? It will be for Americans 
 to decide according to an intimate knowledge of the 
 conditions of their own country.
 
 CHAPTER IX 
 
 Iisr THE WAKE OF CEEDIT 
 
 The direct effects which Co-operative Credit has 
 produced in countries in which it is systematically prac- 
 tised cannot be described as anything less than mar- 
 vellous. The total sum raised must be something stu- 
 pendous. Unfortunately there are no statistics that 
 can be looked upon as at all either complete or trust- 
 worthy. However we know that in Germany less than 
 a thousand Schulze-Delitzsch banks have raised some- 
 thing like $750,000,000 a year by co-operative means 
 in steadily increasing volume, to distribute among their 
 members, in whose hands the money is left to fructify, 
 giving bread to the eater and seed to the sower, and 
 after that returning with interest to the cash box from 
 which it was first taken. No other organised body of 
 co-operative banks has operated collectively upon the 
 same grandiose scale. However, among those many 
 thousands of banks the collective total must be some- 
 thing very considerable. And it has been produced at 
 a very small cost, with only a comparatively very small 
 share capital, securing the lender by other and more 
 homely means than tfeose.in use in the banking world, 
 the foundation of which is capital. And co-operative 
 
 banking has turned that immense sum loose upon pro- 
 
 272
 
 IN THE WAKE OF CREDIT 273 
 
 ductive emplo^Tiient just where it was most needed and 
 bound to produce the largest general benefit, for its 
 borrowers and for the community, that is, at the bot- 
 tom, or nearly so, of the social pyramid, where the dol- 
 lar, added to by labour, produces most largely in pro- 
 portion to the outlay, and at the same time diffuses most 
 comfort and contentment. That dollar has gone forth, 
 providing employment for the worker, business for the 
 tradesman, agricultural requisites for the farmer, en- 
 riching the many and adding to the resources of the 
 State — not gilding the mountain tops of millionaire 
 wealth, but fertilising the humble plain, and so levelling 
 the entire mass of the population upward. At the 
 same time it has served as a potent stimulus to thrift, 
 and has emancipated and levelled morally upward as 
 well, producing at the same time better-to-do and better 
 men. It is the cottage and the humble citizen's house 
 mainly which have benefited. 
 
 That is a glorious record indeed. However it is 
 not by any means all that has to be set down to the 
 credit of co-operative banking. More money in peo- 
 ple's pockets, better morals in their character, must 
 necessarily have also meant better trade, a raised 
 standard of living, larger opportunities for leisure, 
 general benefit for the State. However, apart from 
 this, co-operative banking — the cJieville ouvriere (let 
 us say, " the main driving wheel ") of all Co-operation, 
 as the late Leon d'x\ndrimont has rightly termed it — 
 has powerfully incited to resort to co-operative methods 
 for other purposes than the provision of money only. 
 It has set up Co-operation as a potent machine for
 
 274. CO-OPERATIVE CREDIT 
 
 wealth-making and character-raising in all branches of 
 human employment, although not in each to exactly the 
 same extent. The benefit, which in this way it has 
 indirectly caused, can certainly not be reckoned at less 
 value than that which it has produced by direct means. 
 Co-operative Credit may be said to have a boon in its 
 gift for every several form of Co-operation practised. 
 Such benefit is least observable, perhaps, in the practise 
 of co-operative distribution, the commerce of '* Stores," 
 which has proved so fruitful a help to the working 
 classes wherever it has been allowed to strike root. 
 Such effect, unfortunately, is still only little discerned 
 in the United States where, somehow, co-operative dis- 
 tribution has not yet found the place for itself in na- 
 tional economics which in a community so largely com- 
 posed of humble workers it deserves. Yet even on this 
 ground examination shows the boon to be present, and 
 it is not the fault of banking if the benefit has not been 
 rendered more substantial. The great mass of dis- 
 tributive co-operators have today a little forgotten the 
 rock from which they were hewn and the point from 
 which they started, the work which their predecessors 
 set themselves to do. With marked success has come a 
 different view of things, oblivion of the past, disregard 
 of those for whom the Toad Lane weavers constructed 
 their useful fabric. The work which they set out to do 
 was, to help the poor, to place them, by means of co-oper- 
 ation, economically on an equal footing with the 
 wealthy. Those poor people had no money. But they had 
 custom. Olit of that custom they were to manufacture 
 money and so become capitalists. Now that co-opera-
 
 IN THE WAKE OF CREDIT 275 
 
 tioii has prospered, it has become the peculiar preserve 
 of — these are not my words, but the words of the late 
 General Secretary's of the British Co-operative Union, 
 J. C. Gray — '' the well-paid artisans." The poor are 
 left outside. Were it not for the courageous " Women's 
 Guild " which, with a woman's heart, feels for these 
 people and thinks of them, the poor might be wholly 
 forgotten. Correspondingly the co-operative war-cry 
 now goes forth to a different tune. The cry used to be 
 for " Justice " — equality with the better-to-do. ISTow 
 it is, in the w^ords (much applauded at the time) of the 
 Chairman of a very recent British Co-operative Con- 
 gress, for " Supremacy." The acknowledged aim is no 
 longer to help the poor, but to set up a " Co-operative 
 Commonwealth," to the rule of which willy nilly every 
 one is to bow. Why are the poor left outside? One 
 reason is that — as the Women's Guild has pointed out 
 — the goods sold have, concurrently with the social and 
 financial uprising of those who buy them, become too 
 pretentious for the poor and are sold in too large min- 
 imum quantities to suit their tiny purses. Another 
 reason is that the poor still, as in 1844, have no ready 
 money. The Stores rightly on principle give no credit, 
 but sell only for cash. In practice, indeed this whole- 
 some rule is much disregarded. The want of the poor 
 is to some degree met — very faultily — by allowing 
 shop credit all the same — or they w^ould be totally 
 precluded from purchasing. But shop credit never 
 helps those who are allowed to practise it. It demor- 
 alises them and so leads them on to buy what they will 
 not have money to pay for. And it utterly spoils dis-
 
 276 CO-OPERATIVE CREDIT 
 
 tributive co-operation. The late G. J. Holyoake — the 
 " grand old man," as he has been termed, of British 
 Co-operation — has repeatedly pointed out to his fel- 
 low co-operators at Congresses and other meetings that 
 what they want to bring the poor in is not shop credit 
 but what he was pleased to call " Mr. Wolff's banks." 
 Raising credit at a co-operative bank is a wholly differ- 
 ent, a far more businesslike, matter from claiming credit 
 at a shop. So far from discouraging calculation, it 
 compels to it and makes people think beforehand. It 
 produces the same amount of money, but at a cheaper 
 rate, and it does so while bracing the borrower rather 
 than enervating him. And co-operative bank credit 
 could not fail to attract many more adherents to the 
 co-operative cause, most notably to distributive co-op- 
 eration, which to very poor people is the first stepping 
 stone to a rise in life. For we know that among the 
 poor the most usurious money lending is rife. And, 
 because money is necessary, the moneylenders are 
 thanked for the service which they render at an extor- 
 tionate price, but which there is no one else to render, 
 high price or low. 
 
 Once more, among distributive co-operators the prac- 
 tice is rightly becoming common, after British exam- 
 ple, of maintaining a banking department in their 
 Central or Wholesale Society. Such department has 
 in Great Britain proved an excellent institution. It 
 economises societies' money. It perfects the members 
 in a knowledge of banking. It opens a wider ground 
 for the practice of thrift. And it enables societies to 
 do collectively many things which without it they could
 
 IN THE WAKE OF CREDIT 277 
 
 not attempt. That department, however, is co-op- 
 erative only in the sense of being owned by co-opera- 
 tors. The consequence is that for transmitting money 
 from one place to another and for cashing cheques — 
 most distributive societies bank at the said banking 
 department — that department has to employ the serv- 
 ices of other, non-co-operative banks at a commission; 
 in addition to w^hich it has difficulty in realising its 
 very legitimate ambition of becoming a deposit bank 
 for individual co-operators as well as for co-operative 
 societies, so as to gather more money together for the 
 use of the movement. Both objects might be readily 
 attained if there were co-operative banks by the side 
 of the Stores. 
 
 Accordingly, although one is bound to subscribe to 
 the dogma that a distributive society should require no 
 credit for itself — which would give it an insecure 
 foundation — one cannot help thinking that even for 
 Co-operative Distribution Co-operative Banking would 
 be a useful ally — let alone that recruits for a move- 
 ment have to be got hold of by whatever benefit most 
 attracts them. Some folk feel the want of cheap house- 
 hold articles most keenly; others the want of co-op- 
 erative workshops; others again the want of ready 
 money. All these services, meeting various wants, 
 really spring from the same root and supplement one 
 another. 
 
 Industrial Co-operative Production, so one would 
 suppose at first blush, must be the chief gainer by co- 
 operative banking. It certainly gains by it, and not a 
 little. But not by any means as much as one would be
 
 278 CO-OPERATIVE CREDIT 
 
 tempted to conclude at first suggestion. The reason is 
 that productive societies as a rule are not in a position 
 to offer quite the security which a co-operative bank 
 would have to require, and that they want their money 
 for longer than the co-operative bank could afford to 
 part with it. The backwardness of co-operative banks 
 in respect of making advances to productive societies 
 has now and then been made a matter of complaint. 
 Productive co-operators contend that "co-operative 
 spirit " ought to lead co-operative banks to lend even 
 beyond their ordinary limits of time and security in 
 the interest of " the cause." Some few have done so, 
 in spite of difficulties, in the best class of cases. How- 
 ever a co-operative bank is under a necessity, more than 
 any other, to keep its funds liquid and to study safety. 
 Even capitalist banks with public money in their coffers 
 experience difficulties in meeting productive societies' 
 wants. That is at the present time made a complaint 
 against the newly started banking institution at Eome, 
 which was expressly formed to assist co-operative pro- 
 ductive societies, but finds that a large proportion of 
 their claims would, if allowed, lead it into danger and 
 so is driven to refuse them. Well conceived productive 
 societies, appealing to common interest and promising 
 success — down to, even the poorly equipped navvies' 
 societies in Italy in their earlier stages, when their 
 possessions really amounted to practically nothing at 
 all — have not generally wanted for borrowed money 
 on this score. But it is as a rule private capitalists 
 who have provided such, rather from interest in the 
 cause than as an ideal investment. And alike in Italy,
 
 IN THE WAKE OF CREDIT 279 
 
 as has been shown, and in France, productive societies 
 have been referred for loans to specially organised joint 
 stock banks — that in France being the property of the 
 productive societies themselves (with a legacy of $100,- 
 000 left by a philanthropist and money subscribed by 
 capitalist well-wishers; the share capital now stands at 
 more than $200,000) — that in Italy being endowed 
 with $1,600,000 of public money. 
 
 On the other hand Co-operation in Agriculture — 
 the crying want at the present time in most countries — 
 may in general be said to owe its very origin and exist- 
 ence to Co-operative Banking. This is certainly, and 
 very markedly, the case in Germany, in which country 
 co-operation in agriculture is now the most fully de- 
 veloped and has attained the most imposing proportions. 
 Prior to the organisation of co-operative banking, there 
 was no co-operation in agriculture to be thought of in 
 Germany. The Prussian Ministry of Agriculture in 
 1871 betokened its interest in the matter by printing 
 a short article from my pen reviewing our early be- 
 ginnings in England as an intended incentive to imita- 
 tion. But that had no effect whatever. Once 
 Raiffeisen banks had — thanks in part to the exam- 
 ination of a highly competent Eoyal Commission, 
 which issued a most favourable Report in 1875 — es- 
 tablished their reputation, the portal of success seemed 
 widely opened to such Co-operation, and Agriculture 
 rushed violently in. Co-operation in Agriculture be- 
 came the farmers' favourite study. The command of 
 money had planed the way. It is on this point that the 
 specific advantage, of the Eaiffeisen system became par-
 
 280 CO-OPERATIVE CREDIT, 
 
 ticularly apparent. The basis of its credit, in contra- 
 distinction to other systems, is not the temporary pos- 
 session of withdrawable deposits, but the mortgaging 
 of a permanent, little changing, asset, to wit, the un- 
 limited liability of all members, upon which security 
 funds may be raised at any time, to be lent out for long 
 periods, ten years and more. The security is likely 
 always appreciably to exceed the amount raised upon it. 
 Only by such means could, to state but one instance, 
 that valuable service have been rendered to co-operative 
 dairying, of providing the money for starting the or- 
 ganisation with its modern installation, the repayment 
 of the loan raised for such purpose being made out of 
 the proceeds, at so much for every gallon of milk used. 
 A bank dependent upon short credit might have done 
 much else that was available; but it could not have 
 done that. The same comment applies to electric in- 
 stallations and many other things. But such direct 
 money utility apart. Co-operative Credit serves very 
 visibly and powerfully as a stimulus, and a potent one 
 too, by reason of its sharpening the wits of those who 
 practise it — which it does to a larger extent than any 
 other form of Co-operation — and accustoming men to 
 co-operation. Co-operation learnt in credit is applica- 
 ble to any other foum. If you want to see the maximum 
 use made of co-operative methods in aid of Agriculture, 
 you will have to go where it is based upon credit. Den- 
 mark is an intensely co-operative country — on the side 
 of Agriculture. However the forms in which it prac- 
 tises agricultural co-operation are comparatively few. 
 It has no co-operative credit — except for mortgages.
 
 IN THE WAKE OF CREDIT 281 
 
 And it probably wants none. It has, as its spokesman, 
 M. Nielssen, explains in an official publication contri- 
 buted by his Government to the Brussels International 
 Agricultural Congress of 1910, taken up the various 
 forms that it actually practises, just as necessity pushed 
 it to them — dairying, when Prince Bismarck closed 
 the accustomed German market against Danish corn 
 and thereby compelled the Danes to take to pasturing 
 and dairying; bacon-curing when Prince Bismarck's 
 successor once more barred the way, for Danish pork, 
 into Germany. In the Netherlands, likewise, the agri- 
 cultural co-operative movement is independent of co- 
 operative credit, which has only come in, after it, as 
 an offshoot from Belgium. But there, once more, 
 agricultural productive co-operation has remained con- 
 fined, practically, to the one form of dairying, in which, 
 together with the rearing of cattle, so intimately con- 
 nected with it, it has been carried to a high degree of 
 development. It need not be explained that cattle rais- 
 ing and dairying are the national agricultural industries 
 of the Netherlands, to which it is no miore than natural 
 that methods which had been observed to answer ex- 
 ceedingly well elsewhere should have been applied. In 
 Germany, on the other hand, under the stimulus of 
 banking, farmers deliberately set themselves a-thinking 
 in what new ways Co-operation might be impressed into 
 service to improve their position. Inquiry was let 
 loose, and all the occupied ground was carefully re- 
 connoitred. That led to rather bold experimenting, 
 which in some instances resulted in loss — more par- 
 ticularly when the Government tried to help by provid-
 
 282 CO-OPERATIVE CREDIT 
 
 ing public funds. That, so it is now frankly admitted, 
 made people hopelessly reckless in outlay and schemes. 
 They did not count the cost of things, nor calculate 
 returns. Thus it was with respect to co-operative 
 granaries, which were to emulate American " eleva- 
 tors " organised for rather a different purpose, namely 
 to fight " rings." The Prussian Government granted 
 five million marks towards this, of which by far the 
 greater portion turned out to have been simply wasted. 
 The result was nil — or rather less than nil, because it 
 gave co-operative gi-anaries a bad name. Thus it was 
 in Austria in respect to vinegrowers' societies, for the 
 co-operative manufacture and sale of wine. Under 
 such employment Government money likewise came to 
 melt away into nothing. The failure of the German 
 speculation in nitrate deposits has already been noticed. 
 But after these losses, considerable as they were, 
 after all a balance of gain remained. If " cornhouses " 
 were not advantageously to be " run " on the grandiose 
 scale originally contemplated, it was found that, in 
 some countries at any rate, they might be very usefully 
 turned to account in a less pretentious but more bus- 
 inesslike manner. Treated in this way they serve very 
 well with the help of the banks, to equalize the price of 
 com ; they enable the farmer to raise money at the time 
 when he wants it most, without having to throw away 
 his chief produce for a song; and they have already 
 contributed to unifying the product, causing grain of 
 one particular sort, and that the best suited to the dis- 
 trict, to be cultivated by members in the area governed 
 by one chief depot. Thus grain growing — and in a
 
 IN THE WAKE OF CREDIT 283 
 
 similar way the growing of other produce, fruit, pota- 
 toes, beetroot etc. — has been decidedly improved, to 
 the pecuniary advantage of the farmers concerned. 
 The improvement has been particularly marked in the 
 cultivation of tobacco. And there has been a remark- 
 able advance effected in the employment of electric 
 power and light. 
 
 It is only a trait of human nature that, once the 
 utility of Co-operation in such application has been 
 made clear, people should have been led to form extrav- 
 agant hopes of large profits to be netted in a speculative 
 way. For the devil of covetousness is strong within 
 all of us. Experience has shown that it is not in Co- 
 operation to gratify such desire. It will not lend itself 
 to speculation or monopoly or the earning of extrava- 
 gant gain. But it will secure and steady the market, 
 facilitate sale and to a great extent extinguish the reign 
 of ups and downs. 
 
 But it is not only particular productive processes that 
 the command of money raised by credit has suggested, 
 nor yet such easy interlinking of co-operative services 
 as that largely practised in Italy, of a co-operative bank 
 being set up by the side of a supply association, in 
 which bank farmers may obtain credit in the ordinary 
 way, by pledging security, which credit is afterwards 
 assigned to the supply association, so that the farmer 
 is placed in a position practically to buy on credit with- 
 out any addition to price and without incurring the 
 demoralising effects of shop credit. The supply asso- 
 ciation can go on selling only for cash. The two 
 transactions are kept wholly apart. The buying bor-
 
 284. CO-OPERATIVE CREDIT 
 
 rower knows beforehand to the cent what he will have 
 to pay for his money. And he cannot run up a long 
 account. The bank will see that he redeems his debt. 
 But in truth after, and by, the introduction of co- 
 operative credit the whole atmosphere of Agriculture 
 becomes changed. There is more verve, more " go," 
 more intellectual activity perceptible in it. The power 
 to obtain money for useful purposes acts on the agricul- 
 tural mind like electric power on machinery and like 
 moisture upon sand. It urges it on and makes it 
 inventive, at the same time that it fertilises it and 
 enables it to bring forth fruit which previously it 
 seemed hopeless to look for. And we may be sure 
 that this is the result of co-operative credit. For we 
 obtain it everywhere where co-operative credit comes to 
 be introduced, and not long after, as a regular sequel 
 — even in India. The awakening of the rayat mind 
 after co-operative credit had become established in his 
 country is something to be studied. He now wants 
 to learn. He wants to learn agriculture, but at the 
 same time to acquire general education. Societies have 
 made their secretaries, as a complement to their secre- 
 tarial duties, teach members' children reading and writ- 
 ing, etc. Kayats inquire — for the present in an ele- 
 mentary way — into agricultural science. They want 
 to cultivate well, to know how to manure, what perfected 
 machinery to employ. They want to be able to buy 
 that machinery and those useful fertilisers. They 
 urge the authorities to provide the required teaching 
 for them. They themselves have begun to form co-
 
 IN THE WAKE OF CREDIT 285 
 
 operative societies for the purposes indicated. The 
 whole outlook has thereby become improved. 
 
 It is the same in Europe. Co-operative classes and 
 regular courses of co-operative training under the guid- 
 ance of co-operative unions have become common. The 
 French sijndicats agricoles have taken up the teacher's 
 ferule bj the side of those useful departmental " Direc- 
 tors of Agriculture " appointed by the Government. 
 In Italy Co-operation has inspired those cattedre am- 
 hulanti which, " ambulating " from place to place, 
 teach the backward rustic how to turn his scamped 
 old-fashioned calling into a scientific and profitable pur- 
 suit and provide him with the means for doing so. For 
 their local teachers are also their agents for the sale 
 of recommended machinery and the like, and their 
 amanuenses, to show the peasants how to use these 
 things. 
 
 The remarkable development which has taken place 
 in German agriculture within the last generation is dis- 
 tinctly an outcome from co-operative credit. In co- 
 operative credit, in the co-operative organisation of 
 agriculture, and in rapid agricultural progress Ger- 
 many undoubtedly takes the palm of countries. Fifty 
 years ago its agriculture was undeveloped and back- 
 ward. England and Scotland were gladly, and rev- 
 erently, accepted by it as its school masters, from whom 
 to learn, sometimes in a purely mechanical way, since 
 whatever was done in England or Scotland was 
 reckoned to be indubitably good. To-day German agri- 
 culture considers British backward. That is in some
 
 286 CO-OPERATIVE CREDIT 
 
 very important respects an utter mistake; for the 
 critics fail to appreciate the very substantial differ- 
 ences prevailing between circumstances in one country 
 and the other. But it shows that under the stimulus of 
 Co-operation, formerly studying to follow others, Ger- 
 man agriculturists have long since learnt to think for 
 themselves, to work out their own schemes, suited to 
 their own conditions. In respect of adaptability, of 
 suiting cultivation, whether rotational or single crop- 
 ping, to varying climates, surroundings and circum- 
 stances generally, they probably stand topmost among 
 nations. Their land brings forth by quarters where 
 formerly it used to produce bushels. And were it not 
 for their land system, with its pretension to keep up 
 worn-out feudal institutions, " to supply the army with 
 officers " — of the Zabern sort — and the Throne with 
 a " loyal " bodyguard, and for the systematised tempta- 
 tion offered to run hopelessly into debt by mortgaging 
 the land, simply " to keep up appearances," under an 
 agricultural aspect the position of German landowners 
 would be as good as any to be met with on the globe. 
 
 Progress has not been equally marked either in 
 France or in Italy. But it is there. Twenty-three 
 years ago, when exploring the rich Lauragais, the origi- 
 nal " Cocaigne " of imaginative fancy, a storehouse of 
 fertility shone upon by a stimulating sun, I ventured 
 apologetically to suggest to the departmental director 
 there: " But your cultivation is rather backward here." 
 " Oh," replied he, " we still live in the age of the old 
 Eoman plough." He could not say that now. The 
 rich lowlands of Lombardy, with their masterful irriga-
 
 IN THE WAKE OF CREDIT 287 
 
 tion and their nine or ten cuts of grass per annum, had 
 not much to learn from Co-operation. But elsewhere 
 in Italy Co-operation has proved of distinct value, and 
 under its sway Italy, which has vainly laboured to vie 
 with England and Belgium as an industrial country, 
 now stands in a good way of recovering its ancient 
 reputation of the time when the Campagna, bare and 
 feverbreeding at present, was the smiling and peopled 
 granary of its country, and the now scorched plain of 
 the South brought forth between the still standing, 
 shady and rain attracting forests, rich harvests of 
 wheat. The effect of this is distinctly to be seen in the 
 rather greedy way in which co-operators of the peasant 
 and rural labourers' class cry out for "credit," even 
 where to give credit would be a rather risky proceeding. 
 But at any rate they have learnt to understand and 
 appreciate the value of credit as a productive and 
 wealth-bringing agent. Even Denmark has not cut 
 itself off from co-operative credit as much as might be 
 judged. There are many in that country who hold 
 that co-operative credit would prove useful there. And 
 under a former Ministry, not long ago, an inquiry was 
 ordered by Parliament, and held, and five million 
 Danish crowns were actually voted to finance a begin- 
 ning. A change of Ministry upset the scheme. The 
 advance in agriculture made in the erstwhile principal- 
 ities, now kingdoms, of the Balkan peninsula stands a 
 credit to the same account. And even in Egypt the 
 introduction of credit, non-co-operative as it was, in- 
 spired to the fellaheen thoughts of co-operative organi- 
 sation for selling their cotton as well as for securing
 
 288 CO-OPERATIVE CREDIT 
 
 agricultural requisites, the demand for which appears 
 to have outgrown the capacities of the National Agri- 
 cultural Society, useful institution that it is. These 
 thoughts did not lead to successful practical results, 
 because the co-operative principle was still too little un- 
 derstood. But after the advent of such co-operative 
 regime as we are now promised, we may look for better 
 things. 
 
 The effect, indeed, has been pretty general. And to 
 whoever knows what co-operative credit means, it must 
 appear perfectly natural. A blunted mind cannot 
 think any more than a blunted blade can cut. Sharpen 
 it, as co-operative credit does, providing the prospect of 
 thought being turned into profit, with the help of means 
 for using it supplied, and it will do its work. Here is 
 the point. Credit supplies the means for turning ideas 
 into facts. The man who finds it placed within his 
 reach is like the proverbial soldier of Napoleon's army, 
 who did not fight without prospect, but had " the 
 marshal's baton" bound up in his knapsack.
 
 CHAPTER X 
 
 LEGISLATION 
 
 If there are to be co-operative banks, evidently 
 there will have to be laws authorising and regulating 
 their formation and procedure. There are none such 
 at present in the United States. For what few State 
 Acts exist are not at all suitable for co-operative bank- 
 ing of any description. 
 
 There are cases, indeed, in which a law may, at any 
 rate for a time, be dispensed with. The history of 
 British Friendly societies, Co-operative societies, Trade 
 unions and Building societies furnishes an example of 
 this. It tells how such associations may grow up with- 
 out a law, even in the teeth of violent opposition in 
 legislative quarters and official frowns, and by their suc- 
 cess practically compel Parliament to legislate for them 
 — perhaps all the more suitably for having delayed 
 action until the object of such had become thoroughly 
 understood by the light of experience. And, in view 
 of such successes, when, after having primed himself by 
 study of my book " People's Banks" and by corres- 
 pondence with sundry other European co-operators to 
 whom I had referred him, my friend Mr. Alphonse 
 Desjardins, in despair at the absence of a suitable Act 
 in the Dominion of Canada, and its provinces, asked 
 my advice, how to proceed with the formation of thrift 
 
 societies, really intended to become banks, in his 
 
 289
 
 290 CO-OPERATIVE CREDIT 
 
 country, I very naturally recommended him to do as 
 our co-operators had done in Great Britain and proceed 
 without a law, trusting for the time to the honesty and 
 good faith of his converts. That advice was acted upon 
 and, so far as the Province of Quebec is concerned, it 
 has answered its purpose — not, indeed, to the full, be- 
 cause the law eventually passed is faulty in some im- 
 portant particulars; but still sufficient for its purpose 
 in this respect that it places the societies and their 
 creditors under legal protection. It still prohibits the 
 taking of deposits from non-members. It thereby dam- 
 agingly restricts its sphere of action and makes it rather 
 a humble loan society than a bank. But it will, please 
 God, prove the stepping stone to something more per- 
 fect. 
 
 The United States are not at the present time quite 
 as badly off as Canada was in 1900. They indeed have 
 no genuine co-operative laws. There are some, nom- 
 inally, in a limited number of States — I believe there 
 are sixteen. Those laws are cumbrous and unsuitable 
 in the extreme, and very clearly demonstrate how 
 widely the American conception of Co-operation still 
 differs from the British and generally the European. 
 There is the unmistakable stamp of the joint stock 
 company upon them and official suspicion of intended 
 wrongdoing surrounds them with barbed wire en- 
 tanglements. Societies are supposed to work " for 
 profit " — whereas our European societies distinctly 
 work " for economy " and therefore, in Great Britain 
 at all events, escape taxation. There is no " profit " 
 in them. The American societies are to be formed for
 
 LEGISLATION 291 
 
 a certain fixed period, with a fixed " capital stock," to 
 be named beforehand, which stock is to be " subscribed 
 for " within a certain time in shares of not less than 
 $50 nor more than $2,000, of which shares each mem- 
 ber may hold only one. The society is to constitute a 
 " corporation." It is to be burdened with an official 
 hierarchy of " a President, a Vice-President, a Secre- 
 tary and a Treasurer " and more " Directors." And 
 everybody is to be sworn and made to find security. 
 Those shares may be " sold to any person," and in 
 some cases they must be offered to the public. And 
 there is to be a General Meeting " at least once a 
 month." ^ 
 
 I^ow in Europe we particularly insist that a co-oper- 
 ative society, in contradistinction to a joint stock com- 
 pany, is a combination, not of capitals but of persons. 
 Xobody is sworn or required by law to find security. 
 The administering body required by law is a simple 
 " Committee of Management." Shares are small, as a 
 rule of $5, and members may at their pleasure take, one 
 after another, at any time as many as they like up to 
 the value of $1,000. But such shares must not be sold 
 " to any person " but can only be transferred to per- 
 sons previously accepted by the Committee as members. 
 At the same time there is no limit to the share capital 
 of the society; it may be increased at pleasure. In 
 
 1 1 am indebted for such knowledge as I possess on the mat- 
 ter to the kindness of the acting Commissioner of Labor, who, 
 in September, 1912, was good enough to send me a number of 
 the Bulletin of the Board of Labor quoting the law for Illinois, 
 as given in the " Eevised Statutes of 1905," with the explana- 
 tion added that "the essential features (of all these laws) 
 are so similar that no summary or digest is necessary."
 
 292 CO-OPERATIVE CREDIT 
 
 Italy I have known a co-operative credit society of con- 
 siderable merit which had, and still has, shares of only 
 $7. However many shares a man may hold, he will 
 still be entitled to only one vote. The members 
 meet once a year in general meeting, rarely oftener. 
 That would be in " special meeting " for some special 
 and exceptional purpose. Evidently, since the Ameri- 
 can Acts prescribe that the shareholders shall provide 
 all the " labour " and must not employ auxiliaries, the 
 laws are intended to apply only to " productive socie- 
 ties," leaving all the others — distributive, supply, 
 credit, agricultural, etc. — out in the cold. That ex- 
 plains why those hosts of Elevators, Telephone, Insur- 
 ance, Dairying and Irrigation, Emit and Sale societies, 
 and so on, although named " Co-operative," will not fit 
 into our European notions of co-operative societies. 
 They are working " for profit." They are " mutual " 
 societies, comparable to syndicates or rings. 
 
 Since a few years there are in one or two States — 
 three, so far as I have been able to learn, to wit, Massa- 
 chusetts, New York and Texas — special laws for 
 " Credit Unions," to which " Credit Unions " they set 
 a very narrow ambition. They altogether preclude 
 them from becoming co-operative banks. These new 
 Acts will be briefly discussed a little further on. But 
 it may be well first to look and see what has been done 
 in the matter elsewhere. 
 
 Now, in view of very marked differences prevailing 
 — of circumstances, habits and usages — precedents 
 taken from other countries can obviously possess only a 
 limited value as guidemarks to go by. However a cer-
 
 LEGISLATION 293 
 
 tain value they do undoubtedly possess. It cannot, 
 therefore, be amiss briefly to take stock of what legisla- 
 tion, that has proved successful, has been passed else- 
 where. In the majority of foreign countries legislation 
 on co-operative credit is still in a rather confused con- 
 dition, which shows that, what between undue timidity 
 and distrust on one side, and deficient understanding as 
 to what should be asked for, on the other, the Gordian 
 knot has not yet been fully cut. In France there is a 
 kind of chaos, to remedy which the revision of existing 
 laws is now proposed. Neither in Belgium nor in Italy 
 is the condition of things quite satisfactory. In Bel- 
 gium co-operative societies are simply " commercial " 
 societies. But there are three good laws — defective 
 only on minor points — that is, in Germany, in Austria 
 and in the United Kingdom. The laws in all these last 
 named three countries have proved satisfactory in gen- 
 eral and those who work under them are pleased with 
 them. The reason of their success evidently is that they 
 lay down broad principles, but do not enter into minute 
 details, such as the Latin proverb says that the law 
 should ignore, and such as the authors of the Acts of 
 Massachusetts, New York and Texas appear to have 
 delighted to revel in. To employ a historic phrase of 
 the late Archbishop of Canterbury — " we trust the 
 people " — they had trust in members of co-operative 
 societies (being aware that their own interest requires 
 good practice on their part), abstaining therefore from 
 tying their hands — save in one thing: their accounts 
 must be thoroughly verified and there must be search- 
 ing control, so that there can be no danger of any one
 
 294* CO-OPERATIVE CREDIT 
 
 being misled by false statements. It is an entire mis- 
 take, engendered by ignorant prejudice, to go into 
 minutiae, as the three American Acts named and the 
 draft bills brought in as a sequel to the European in- 
 quiry by the " American Commission " do. That only 
 unnecessarily fetters the hands which are expected to 
 work and spoils what it is intended to improve. The 
 British Acts — there are really two — are the most 
 general. But they have been found suflScient — in one 
 case fully, in the other at any rate fairly — even for 
 banking, for which they were not by any means in- 
 tended. The Industrial and Provident Societies Act 
 of 1893 — recently supplemented by that of 1913 — 
 which makes limitation of liability obligatory, con- 
 templates banking to this extent, that it prohibits 
 " banking " in societies with withdrawable shares — 
 which is no serious hindrance. Many people indeed 
 prefer to have withdrawable shares, because they wish 
 to be able to get out of a society into which they have 
 first got. It disposes people more readily to go in, if 
 they know that they can go out again. For Eaiffeisen 
 banks, however, we must have unlimited liability. Ac- 
 cordingly we have had to register such societies under 
 the Friendly Societies Act of 1896, which is the only 
 Act at all suitable for the purpose, as permitting un- 
 limited liability, but which was designed for societies 
 of a totally different order. It did not at first per- 
 mit the taking of deposits beyond an entirely inade- 
 quate proportion. But that has been remedied by the 
 Societies Borrowing Powers Act of 1898, brought in 
 for that very purpose by Sir Horace Plunkett, when in
 
 LEGISLATION 295 
 
 Parliament, which Act gives societies full powers to 
 borrow, from non-members as well as from members, 
 so long as they do not work " for profit," that is, do not 
 " pay dividends, or bonus, make all money lent ap- 
 plicable only to such purposes as the Society or the Com- 
 mittee of Management may approve," and make their 
 reserve fund indivisible. Societies formed under the 
 Industrial and Provident Societies Act have full bor- 
 rowing powers in any case. Under that Act it is share- 
 holding powers which are limited, lest one man or a 
 few men should acquire excessive money power. 
 Members or non-members alike may deposit or lend 
 to the Society as much as ever they please. Unques- 
 tionably it would be more convenient if there were one 
 Act only for both classes of banks, as is the case in Ger- 
 many and Austria. But that appears at present to be 
 impracticable owing to the strong objection which Brit- 
 ish co-operative societies quite justifiably entertain 
 against permitting unlimited liability under a law 
 which may be made applicable to societies of their own 
 class. Under either Act the accounts of societies have 
 to be submitted annually to the Chief Eegistrar of 
 Friendly Societies, whose business it is to see that 
 all provisions of the law are fully complied with and 
 that the figures, being previously audited by competent 
 men, are true to facts. He does not go beyond that. 
 He may cancel the register of a society which acts illeg- 
 ally or which remains for any length of time insolvent. 
 But he does not interfere in the management. 
 
 The German law is probably the best which at present 
 exists for this particular matter. The wide extension
 
 296 CO-OPERATIVE CREDIT 
 
 of co-operative banking in Germany has pressed the 
 subject upon the attention of legislators. To a certain 
 — desirable — extent it enters into questions of organ- 
 isation. Whereas the British Act only requires that 
 there should be a " Committee of Management " prop- 
 erly constituted, the German Act — which in its main 
 features has served as a prototype for the Austrian — 
 lays it down that there must be a Committee (Vorstand) 
 as executive authority, and also a Council of Supervi- 
 sion {AufsicUsrath), on neither of which bodies may 
 members of the other body sit. The Council of Super- 
 vision, as already explained, corresponds in its func- 
 tions and attributes to the Board of Directors in a Joint 
 Stock Company, the Committee to the Managing Direc- 
 tor. Therefore, under the General Meeting, which is 
 paramount in all things, the Council of Supervision is 
 supreme. No number is prescribed for the Commit- 
 tee. But, since every transaction requires the signa- 
 tures of two members — who have eventually jointly 
 to bear the responsibility — and who are expected to 
 check one another — there must be at least two. The 
 Act also requires that, apart from the drawing up of the 
 balance sheet, and the annual audit, there shall — as 
 already shown — be an inspection at least once every 
 two years, by an officer of an authorised " Union," or 
 else by an officer appointed by the Government. It — 
 wisely — prohibits advances to be made on the security 
 of shares in the particular society, and it fixes the term 
 during which the outgoing member shall remain liable 
 in respect of his shares, at two years.
 
 LEGISLATION 29V 
 
 Here we have everything that is essential fully and 
 effectually provided for, without any hampering inter- 
 ference. There are, as observed, minor defects in the 
 Act. But in general it has given full satisfaction, and 
 under it co-operative banks have flourished. Their 
 own interest, generally speaking, keeps them steady. 
 Wherever they have gone wrong, it has not been be- 
 cause the law was imperfect, but because its precepts 
 had not been observed. 
 
 The American Acts thus far passed or proposed are 
 framed upon altogether reverse lines. They go very 
 minutely — prejudicially and hinderingly — into par- 
 ticulars and ignore altogether very important main 
 points. If in any respect they secure the depositor or 
 the creditor, to a much greater extent do they prevent 
 the society from doing what it was intended to do. 
 
 To begin with, they most effectually prevent it from 
 becoming a " bank." We must here leave the provi- 
 sions proposed — and in Wisconsin actually passed — 
 for co-operative mortgage banks out of account. That 
 question is dealt with in a separate chapter. The other 
 class of societies could not under such laws as those 
 here reviewed possibly become " banks." For a bank's 
 business is to collect money from whoever will deposit 
 such, and employ it afterwards in its own way. One 
 of its particular objects is to provide for money so 
 collected — taken from all comers — more fructifying, 
 stimulating and more widely useful employment than 
 commercial banks and savings banks can furnish, 
 directing it into those millions of small productive
 
 298 CO-OPERATIVE CREDIT 
 
 channels, out of which springs up, not the wealth of 
 millionaires, but the general wellbeing of the whole 
 nation. It is, in M. d'Andrimont's words, to " de- 
 mocratise " banking. The Massachusetts and New 
 York Acts — of which latter I understand that the 
 Texas Act is little more than a replica — explicitly 
 limit the taking of deposits to members only, thereby, 
 by one fatal clause, condemning the society to the status 
 of a mere thrift or loan society, like a slate club or 
 funding club. This is like giving a man a tool to 
 work with and telling him that, for fear of mishap, he 
 must not on any account use it. Without deposits 
 coming in from the outside you can never expect to 
 get together anything like the sums of money that you 
 want. The men who combine in such a society combine 
 because they wa7it money. They want to tap the 
 market for it with their co-operative security, just as 
 the capitalist taps it with his more pretentious, but 
 in no wise inherently more valuable, capitalist security. 
 The intended transaction is the same; it is only the 
 form of the security offered that is varied. What on 
 earth is the use of offering a man a biscuit when, to 
 keep him alive, he wants a family loaf ? Such restric- 
 tions as these, apart from disappointing the wish which 
 thev profess to satisfv, defeat themselves. iS^obodv 
 obliges outsiders to deposit with the society. So long, as 
 the society does not appear to them to be worth trusting 
 they will as a matter of course abstain from doing so 
 and go for depositing to better known institutions. 
 They do not want in the United States to be begrand- 
 mothered in their money transactions. It is the soci-
 
 LEGISLATION 299 
 
 ety's own interest to prove to them that it is safe. And 
 the best policy is to constrain the society to do such 
 work for itself. That being done, it is downright 
 foolish for the Legislature to want to intervene and 
 forbid deposits — more particularly seeing what very 
 useful purposes money so deposited is pretty certain to 
 be turned to, which it could never reach through other 
 channels. Co-operative banking is to-day no longer in 
 the experimental stage, in which it was sixty years ago. 
 It has passed through its trial and has stood the test, 
 and showTi what stuff it is made of. If you would 
 study safety, your object will be far better served by 
 putting the societies on their best behaviour, so as to 
 make them gain the confidence of the multitude, than 
 by tying their hands so as to weaken their sense of 
 responsibility and poking your nose, untrained as it 
 must be for this purpose, into their affairs. 
 
 There is more that is faulty. For a European it is 
 difficult to understand why there should be all that 
 swearing in of officers, and why so many " surety 
 bonds " should be needed, nor why membership should 
 be so jealously limited to citizens of the particular 
 state, even as a nucleus; and why, furthermore, mem- 
 bers of the governing bodies should be precluded from 
 borrowing " either directly or indirectly " — seeing 
 that in all probability they joined the society for the 
 very purpose of becoming qualified to borrow. 
 
 The functions of the various committees also appear 
 to have been confused, in some cases turned topsy turvy, 
 presumably from a want of understanding what they 
 should be, coupled with a nervous fear lest there
 
 ■300 CO-OPERATIVE CREDIT 
 
 should, in Lord Byron's words, " be harm in whatever 
 you, she, he or it may be about." How on earth is a 
 movement like that of co-operative banking to prosper 
 with its wings clipped and its hands and feet tied in 
 this fashion ? If you are so very much afraid of hav- 
 ing co-operative banks go wrong, you had very much 
 better not allow them at all. They cannot prosper in 
 such bondage. All these minute intended safeguards 
 recall to my mind a story that Mr. Chamberlain told 
 me, when he was at the Board of Trade, at the time of 
 the dynamite scare, about a mysterious " metal cylin- 
 der " delivered at his office in London, of which every 
 one in the office in his turn — whose office it would 
 have been to open it, from his private secretary down- 
 ward — fought nervously shy. It looked so very un- 
 canny — surely it must contain dynamite ! As a last 
 resource the police were called in and, being likewise 
 solicitous for their own life and limbs, they packed it 
 carefully, like a baby that must not be awakened, into 
 a barge and floated it cautiously down the Thames to 
 Woolwich, where it was loaded into a cannon and fired 
 off over Plumstead Marshes — when nothing happened. 
 Next morning's mail brought a letter of advice from the 
 Sheffield Town Council stating that a sample of the 
 water from their new waterworks had been sent up in 
 a " metal cylinder " for the Board to take note of. 
 Now, are American Legislatures going to be afraid of 
 what figuratively speaking is no more dangerous than 
 that Sheffield water? 
 
 From what one hears it is Italians, only temporarily 
 settled in the United States, and therefore aliens, who.
 
 LEGISLATION SOI 
 
 being familiar with co-operative baiiking from their 
 owu home, and not troubling much about American 
 laws, have thus far done best over their little co-opera- 
 tive banks. But could one not trust native Americans 
 to do as well as these immigrants ? 
 
 For the shortcomings of the Massachusetts Act there 
 is an acceptable excuse. That Act was, as Mr. Pierre 
 Jay, its author, has explained to me, drafted when pub- 
 lic opinion was still quite unprepared for legislation 
 on the subject and, to propitiate the Legislature, it had 
 to be put into a shape to resemble the measures in force 
 for the well-known Building and Loan Societies. We 
 are familiar with similar cases in England. They 
 probably occur in every country. Bills are put for- 
 ward, not as being perfect, but " to pass." Proposals 
 of mine regarding a consolidation of our two Acts for 
 the very same purpose have been benevolently rejected 
 by a Public Department on the very ground that, al- 
 though they would doubtless serve the proposed purpose 
 best, they could not be expected successfully to run the 
 gauntlet of unreasonable opposition to anything new 
 that members of Parliament love to engage in. How- 
 ever the Kew York Act was passed four years later, 
 when public opinion must have been to some extent 
 familiarised with the subject. Perhaps I may be per- 
 mitted to quote here my criticism in the words of a 
 memorandum which at the request of President Ken- 
 yon L. Butterfield, of Amherst (who acted as chairman 
 at the meetings in Europe of the " American Commis- 
 sion") I drew up for the use of that gentleman, some 
 time ago, when to my alarm I learnt that there was a
 
 302 CO-OPERATIVE CREDIT 
 
 probability of the Commission recommending the New 
 York Act as a model for imitation. 
 
 " I cannot think that the New York Act on Credit Unions 
 is a suitable Act to accept as a model for further legislation. 
 More in particular is it wholly unsuitable for banks of the 
 Eaiffeisen type, the formation of which it appears intended 
 to promote, but which could not possibly be formed under 
 this Act. The entire conception underlying the Act seems 
 wrong. Its authors appear to have failed to realise that 
 they were legislating for voluntary societies of persons com- 
 bining because they are weak in capital, persons bound by 
 the same interest, and restricted to doing business solely 
 among themselves, and to have been guided by apprehensions 
 of the Act being perverted to improper uses by greedy capi- 
 talists seeking to exploit other people. 
 
 " The mere catalogue of oaths required from office bearers 
 and others, and of pains and penalties, proceedings by the 
 Attorney General, etc., kept in store, would astonish a Eu- 
 ropean co-operator. There is no need for such, as indeed 
 for most of the voluminous State interference here provided 
 for. Government interference should be kept out as much 
 as possible, because its unfailing tendency is distinctly to 
 weaken members' sense of responsibility, which in fact is the 
 pillar upon which the entire fabric must rest. Credit can- 
 not possibly be dealt with in such a mechanical, rule-of- 
 thumb sort of way. Every application for it requires to 
 be considered on its own intrinsic merits. The State is right 
 in adopting precautions assuring that legislative provisions 
 will be complied with and that the figures published as indi- 
 cating the financial position of the Union are in accordance 
 with fact. But beyond such point all interference on its 
 part, however well intended, is bound to be hurtful. Mem- 
 bers of the Credit Union are the persons most interested in 
 the safety of their union, and under proper rules they have 
 ample power for keeping it so. The legislator's aim should 
 be to stimulate and quicken such interest. Also, under the 
 surveillance of the Superintendent of Banks, the procedure 
 provided for in the event of Credit Unions landing them- 
 selves in difficulties appears unduly severe. Credit Unions
 
 LEGISLATION 303 
 
 should not, of course, get to such a point. And it rather 
 must be their own object to avoid that. But, after all, it is 
 their own money which is at stake. There are not a few 
 cases in Europe of co-operative banks being got into diffi- 
 culties and getting out again by their own efforts, with the 
 help (involving no ultimate loss) of other co-operative banks. 
 
 " Once interference becomes unavoidable, on the other hand, 
 we should, in the old world, adopt prompter methods than 
 those here prescribed, viz., an action by the Attorney Gen- 
 eral. Our Registrar of Friendly Societies has full powers, 
 which he has never been known to abuse. 
 
 " There are some points on which, with all its excessive se- 
 verity already commented upon, the New York Act fails to 
 provide adequately for safety. Thus it leaves the Union to 
 fix the limits of its own ' activity ' — it is true, subject to 
 the approval of the Superintendent of Banks. But that is not 
 necessarily a sufficient safeguard. We have in Europe found 
 quite mistaken approvals given. Some limits should be 
 drawn in the Act. Once more, whereas the Act deals with 
 quite needless minuteness with the rate of interest to be 
 allowed on deposits or charged on loans, it leaves two main 
 points, upon which everything turns — that is, the limitation 
 of dividend on capital and the limitation of capital (shares) 
 itself — unprovided for. The concern being co-operative, it 
 is essential that dividend on share capital should be limited 
 or, in spite of all pains and penalties threatened, it may de- 
 generate into a profit-seeking organisation. The excess sur- 
 plus belongs to those who use the Credit Union, that is, the 
 borrowers — among whom, after due allowance to reserve, it 
 ought to be distributed as a dividend upon business. Again, 
 the Act says nothing about a limitation of the maximum of 
 'interest' — that is, holding in shares — which a member 
 may acquire in the concern. That, once more, is a dangerous 
 omission. For without such provision, in spite of the * one 
 man, one vote,' the Union may become the property of one 
 man or a few men, and turned into a profit-seeking concern. 
 In all other countries the limit drawn is $1,000. There is 
 no fault to be found with the maximum limit fixed for the 
 share, viz., $25. Only, it is a serious mistake that shares 
 are to all appearance to be dealt with as a marketable com-
 
 304 CO-OPERATIVE CREDIT. 
 
 modity, with a 'face value,' and accordingly presumably 
 also a ' market value,' to be sold to any bidder, indeed to be 
 offered for sale by the Union in the case of defaulting mem- 
 bers; and that no liability is made to attach to outgoing 
 members in respect of their shares. The share is, in truth, 
 or ought to be, anything but a marketable commodity. It 
 ought not to be allotted except with the consent of the Board. 
 A Union all shares and no money would be an abortion. 
 Our British Act designedly makes shares not withdrawable, 
 but transferable, subject to the consent of the Committee. 
 Shares to be put an end to may, of course, be ' cancelled.' 
 But that is another matter. Foreign co-operative banks 
 adopt other safeguards as, for instance, to make the sum- 
 moning of a General Meeting compulsory whenever a certain 
 number of shares come to be withdrawn, to determine whether 
 the bank is to go on with its reduced capital, or to wind up 
 at once. And there is no Act on this subject which does not 
 make outgoing members liable, in consequence, for some defi- 
 nite period, mostly two years. 
 
 " Another regrettable feature is that the Act omits to rule 
 out dangerous investments of Union funds, although quite 
 unduly unkind in cutting down legitimate investments to 
 very poorly paying securities — which, in the case of the re- 
 serve fund, as will still be shown, constitutes a real hard- 
 ship. The Union might, on the other hand, be allowed wider 
 latitude in investments ; but it should be forbidden to immo- 
 bilise its cash and to invest it in shares of other societies, 
 which might involve it in liabilities not to be foreseen. The 
 sole exception to this is that it should be allowed, under cer- 
 tain provisions, to take shares in a Central Bank, to become 
 a clearing house for Credit Unions and a link with the money 
 market. 
 
 " As regards Government regulations the Act might, on an- 
 other point, deal a little more generously with Credit Unions, 
 namely in the matter of charges, fees, costs and expenses. I 
 am not in possession of the other Acts referred to, which 
 regulate such outgoings. But the outgoings appear fixed 
 upon the joint stock company scale. It is a universal prac- 
 tice to allow co-operative societies remissions or reductions. 
 
 " The organisation prescribed in the New York Act con-
 
 LEGISLATION 305 
 
 fuses functions and thereby acts further in diminution of 
 the required sense of responsibility, which is the lifeblood of 
 the whole institution. The accepted principle is that there 
 should be a fully responsible Committee — in the Act called 
 a Board of Directors — 'to administer all the affairs of the 
 Society. The Act indeed provides for a Board, but it en- 
 trusts half its proper functions to another body which, so far 
 from being under its control, in truth controls the Board — 
 which arrangement cannot fail to weaken responsibility. 
 The Act lays it down that the Board shall be composed of at 
 least five members, none of whom are to draw " compensa- 
 tion " or salary — except the " elected officers," of whom out 
 of the five, there are to be four, constituting ex officio the 
 executive committee, and leaving only one poor member to 
 act as ' General Committee ' — in truth as the ornamental 
 ' fifth wheel to the car.' In fixing the number at five and 
 forbidding " compensation " the avithors of the Act appear 
 to have aimed at assimilating the Credit Unions to Eaiffeisen 
 banks, in respect of which both such provisions are adopted. 
 However the Credit Union kept in view cannot in truth be 
 anything like a Eaiffeisen bank. It is based upon shares 
 and it is evident, although this is not explicitly stated, that 
 such shares shall involve only strictly limited liability. The 
 number of five is not generally adopted, nor is there such 
 a hierarchy of officers prescribed as in the New York Act, 
 including the Secretary — who had much the best not be a 
 member of the Committee, but an officer of the Union. In 
 German credit banks there are three directors — legally there 
 might be only two — with distinct functions nominally at- 
 taching to each of them, but practically all doing the same 
 thing. The signatures of two of them, who are made to bear 
 the responsibility for this act, are requisite to every docu- 
 ment issued on behalf of the Committed. These men, de- 
 voting as a rule all their time to this work, are paid. But 
 that is not necessary. In Italy there are three sindaci, elected 
 from out of the General Committee, which acts practically 
 as supervising Council, to perform the same work as a Ger- 
 man Committee, but without salary. One of them is re- 
 quired to be present whenever business is transacted and to 
 pronounce his fiat to every act. To provide for emergencies.
 
 306 CO-OPERATIVE CREDIT 
 
 there are two 'substitutes,' to replace any of the three who 
 may be prevented from attending. The regulation that the 
 Board should meet " as often as is necessary " seems just a 
 little vague. 
 
 "In one respect the Board is in the New York Act given 
 excessive power, in another too little. It is quite right that, 
 as a rule^ the Committee or Board should fix the two rates of 
 interest. But, as the Act stands the Board might defy the 
 General Meeting, thinking otherwise, on the ground of the 
 letter of the Act. The General Meeting ought to be made 
 supreme in all things. It should be for the ' Credit Union ' 
 to fix those rates of interest, the General Meeting in its turn 
 committing the work to the Board, as acting under its own 
 authority. And it should be for the General Meeting, not 
 the Board, to fix the maximum of borrowing to be permitted 
 to any one member. As regards the two rates of interest, 
 the precise limits laid down in the Act are out of place. The 
 Union has to cut its coat according to its cloth. Should it 
 overcharge at any point, the excess would come back to the 
 member in dividend upon business. But members may be 
 trusted not to permit excessive charges. 
 
 However, on the other hand, the Act takes away from the 
 Board all discretion- with regard to loans, and makes it ut- 
 terly dependent upon' the Credit Committee, merely paying 
 out money as the Credit Committee may direct. There is a 
 misconception here about the true office of the Credit Com- 
 mittee. The Credit Committee is intended to be a help to 
 the Board, and not its master. It is from time to time to 
 draw up a cetstelletto, to be kept strictly private, appraising 
 every member, within a safe limit, as to what Schulze-De- 
 litzsch called his ' capacity for credit.' The measure of his 
 ' capacity for credit ' is not necessarily the same as that of 
 what Schulze-Delitzsch distinguished as his ' credit-worthi- 
 ness,' that is, his title to credit, not purely on the ground of 
 his actual possessions — which latter may, moreover, increase 
 or else decline between one appraisement and the next. The 
 Board is permanently in office and in a position to appreciate 
 changes occurring. The castelletto {CreditUste) is, in gen- 
 eral, intended as an authorisation to the executive officer to 
 make certain advances, if asked for, without further in-
 
 LEGISLATION S07 
 
 quiry, if he should know nothing to invalidate it or to ren- 
 der it doubtful. It does not represent the maximum to 
 which the Credit Union might go, provided that security- 
 were found to be sufficient. The Credit Committee also 
 would be a very inconvenient body to make responsible for 
 loans injudiciously granted. The Board is the constitu- 
 tional administrative authority and its power and responsi- 
 bility may be weakened by the introduction of a dualism 
 which can only be to the detriment of the Union. 
 
 " Under such circumstances there is no earthly reason why 
 the Supervisory Council should be authorised to interfere 
 with the Credit Committee at all or to suspend it. The 
 office of that Committee is purely consultative. But the 
 Supervising Council, which represents the members gener- 
 ally, as between one General Meeting and another, ought to 
 have power, on an emergency arising, to suspend the Board 
 of Directors, on condition of referring the case at the earliest 
 moment possible, to a General Meeting. That is a rule of 
 universal application. 
 
 " As regards the Board's dealing with Union funds, I do 
 not like what is likely to be interpreted as a general authorisa- 
 tion to lend without security up to $50. You may lose a 
 good deal of money in fifty dollar loans. I myself am in 
 favour of asking for security — as a general rule — for every 
 loan, were it only for the sake of accustoming people to the 
 practice. However, very much money is, and legitimately 
 may be, loaned to members in larger sums, altogether with- 
 out security. That is a question, under the General Meet- 
 ing (to which the Supervisory Council will report for the 
 Board). 
 
 "Once more, the condition laid down that in respect of 
 every loan applied for the intended object should be stated 
 and adhered to, is out of place in a society based upon shares 
 and limited liability. That provision has evidently been 
 taken from the Raiffeisen rules. However, it does not neces- 
 sarily apply elsewhere. And how are you to do if members 
 ask for a cash credit to run on from year to year? I dis- 
 tinctly hope that in Credit Unions as they are here pro- 
 posed that will become a common practice. In EaiflFeisen 
 societies it would be improper. A direction should be given
 
 308 CO-OPERATIVE CREDIT 
 
 to the Board to act iu every instance according to circum- 
 stances. 
 
 " It seems harsh to deprive members both of the Board and 
 of the Council of the right to borrow. Presumably they 
 joined the Union in order to be able to borrow. And if you 
 debar them that right you run the risk of depriving the 
 Union of useful officers. It cannot be denied that this is a 
 crucial point in the organisation of Credit Unions, a weak 
 point in their armour. However, some method to overcome 
 the difficulty in practice should be found. In large co-opera- 
 tive banks there is a special committee appointed to deal 
 exclusively with these cases. Elsewhere Board and Council 
 are made to consider them in common, of course in the ab- 
 sence of the applicant. 
 
 " Proceeding further, the rules laid down for the employ- 
 ment of society money are at once too hampering and too 
 loose. The society must endeavour to make both ends meet. 
 It is unfair to cripple it unduly in the power of investment. 
 
 " Once more, the safeguards adopted should consist less in 
 such mechanical rules as the Act lays down, than in responsi- 
 bility quickened. On the other hand, Credit Unions should 
 not be encouraged to immobilise funds, as they are often 
 tempted to do. That is what has brought more societies to 
 grief than almost any other cause. And they should, as al- 
 ready shown, not be permitted to invest in shares of other 
 societies, so as to pledge their liability beyond their own ken 
 and control. 
 
 " The provisions laid down, as already stated, appear more 
 particularly injudicious in respect of the investment of re- 
 serve funds. Reserve should be steadily studied and I con- 
 sider the discretion given for reducing the annual quota 
 (rightly beginning with 25 per cent, of the surplus) as too 
 wide. There should always be something carried to reserve, 
 because there is no telling what wants may arise. The figure 
 of the Union's liabilities, laid down as maximum, although 
 sound in principle, is likely to prove inconvenient in prac- 
 tice. However, tying down the reserve fund to certain se- 
 curities only which pay a low rate of interest seems unbusi- 
 nesslike. Why should the Union be made to borrow money 
 at 6 or 7 per cent., when it has money of its own on which
 
 LEGISLATION 309 
 
 it may net only 2V2 per cent? It would be more to the pur- 
 pose to m.ake the reserve inalienable and indivisible, so as 
 to prevent greedy members from wrecking the Union for the 
 sake of the spoils. 
 
 " Looking now at the other side of the balance sheet, the 
 Act quite unduly limits the Union in respect alike of bor- 
 rowing and of the taking of deposits. The two are practi- 
 cally the same thing. The limit had much the best be left 
 to the Union itself, under the checking influence of its re- 
 sponsibility. Certainly one-fifth of the assets allowable only 
 for loan capital is a mockery. Our British Friendly Socie- 
 ties Act (under which we have to fonn our humble little 
 Eaiffeisen societies, for the sake of unlimited liability) al- 
 lows three-fourths, and that is quite insufficient. So Parlia- 
 ment in 1898 readily extended our powers, without setting a 
 limit. As a rule five times the assets (share capital and re- 
 serve) is found a very safe limit, and there are perfectly 
 solvent societies which borrow a great deal more. The ob- 
 ject of the Union is, like the object of a bank, to attract 
 loan capital from outside, employing its OAvn capital less as 
 a working fund than as what Leon Say correctly called a 
 ' capital of guarantee.' 
 
 " And the taking of deposits should be extended to such 
 from non-members. Members unite, not because they want 
 a new receptacle for their excessive money, but because they 
 have little money and want to use other people's. Beyond 
 this, their entire raison d'etre as a thrift institution for pub- 
 lic use is destroyed by a restriction to members. Put them 
 on their good behaviour ! Compel them to make their secur- 
 ity accepted by the public by careful administration and pub- 
 licity, and you will find both their safety and their utility 
 very materially increased. 
 
 " Coming now to the Supervisory Council, which is an in- 
 dispensable institution, I must confess that I should prefer 
 to see the number of its members increased, although there is 
 no fixed principle with regard to this. Nevertheless a larger 
 body speaks and acts with greater authority. The Super- 
 visory Council, so to put it, constitutes the permanent Com- 
 mittee of all the Members, acting for the time as their at- 
 torney. Under the General Meeting it should be supreme.
 
 310 CO-OPERATIVE CREDIT 
 
 without being allowed to interfere in the regular functions 
 of the Board. It may call the Board to account, point out 
 irregularities in its conduct, in extreme cases suspend it. 
 But it must not weaken its sense of responsibility by snatch- 
 ing the reins from its hands. It is quite out of character to 
 make it, as the Act requires, report to the Board. Its Ke- 
 port, reviewing the actions of the Board, must be addressed 
 to the Council's principals, that is, the Members. The chair- 
 man of the Council should preside ex officio — when present 
 — at the General Meetings. Certain intervals should be 
 fixed for its meetings, say, at least once every three months. 
 It is quite allowable to make it audit the Board's accounts. 
 However that is not its main function and had really much 
 better be left to a skilled accountant. Its main action is to 
 review the conduct of business of the Board, inquiring 
 whether the precepts of the law and the resolutions of the 
 members have been observed and if the discretion permitted 
 to the Board has been rightly used; and to report thereon to 
 the General Meeting. A strict Council, going into particu- 
 lars, makes a good Board. A danger lies contained in the 
 possibility that the Board may, while acting fully within the 
 letter of its authority, stretch points in favour of question- 
 able but forbearingly favoured borrowers. If left to itself 
 kindness may overbalance caution. Once the Board knows 
 that it has a strict Council over it, which will report to the 
 General Meeting, it will have its answer of refusal ready for 
 doubtful applicants. 
 
 " Beyond the scrutiny of the Council there should, as time 
 goes on, be periodical inquiry by an inspector authorized by 
 a union of Credit Unions, whose action is bound to add force 
 to the whole class of institutions. 
 
 " From what has been said it will be seen that Chap. 582 
 falls short in many respects of what is desirable in the mat- 
 ter of legislation for Credit Unions. It would be a pity if its 
 faulty provision were made applicable to a wider area. Al- 
 though a good law will not necessarily make good Credit 
 Unions, it is certain that a faulty law will make bad ones." 
 
 Surely Americans know better than to spoil a good 
 work upon which tbej are bent, and which may be
 
 LEGISLATION Sll 
 
 made to yield them an immense national benefit, in 
 this very infantile way. Such laws as this could not 
 have enabled Germany to raise those many millions of 
 money annually turned loose for fruitful productive 
 employment, nor M. Luzzatti to say, as he has done, 
 reviewing the work of his Banche Popolari in Italy: 
 " There is no one now who, provided that he can make 
 out a good case, cannot obtain credit." Have the thing 
 in such freedom as it requires for beneficial work, not 
 tied up in a bag, like a German baby, or do not have 
 it at all ! Provide as stringently as you please for in- 
 spection, for verification of figures, for publicity of the 
 society's doings ! Fix as severe penalties as you please 
 for wrongdoing! Make liability as constraining as it 
 can be made ! But do not overburden the society with 
 a hierarchy of unnecessary ofiicers ! Do not take from 
 it the power of raising money which is the very thing 
 for which it was formed! And leave it its liberty of 
 management! It is responsibility, not minute legal 
 precepts, calling for mechanical, in all probability under 
 such circumstances merely formal, compliance, that 
 can put it upon its best behaviour. 
 
 Legislation will, so it appears, have to be by States. 
 That means that laws cannot everywhere be alike. But 
 President Taft's was an excellent advice, to get the 
 States to agree among themselves upon some general 
 principles to be adhered to throughout. There is sure 
 to be interstate intercourse. And it is desirable that 
 there should be. So the more legislation throughout 
 the States is cast in one mould, the gTcater will be the 
 practical convenience resulting.
 
 CHAPTER XI 
 
 CONCLUSIOISr 
 
 What has been here related — although in no wise 
 exhaustive — must, so one would think, have made it 
 plain that in the shape of Co-operative Credit an eco- 
 nomic force of great creative power has been brought 
 on the scene, a force having its magazine well stocked 
 with instruments of signal potency to produce alike 
 economic and moral results. The efficacy of its Midas 
 touch is not confined to one country or one race only. 
 We have seen that it is adaptable to so large a variety 
 of different circumstances that one might almost judge 
 it to be appropriate to any that might arise. It has 
 created additional riches in the busiest and most thriv- 
 ing industrial centres and in the most fertile agricul- 
 tural districts of Central Germany as well as on the 
 barren heights of the Westerwald, in the languishing 
 plains of neglected Italy, in the half desert wilds of 
 Finland. We have seen that it knows how to accom- 
 modate itself to the habits of the Teuton, the Gaul, the 
 Turanian, the Mussulman, and the Hindoo. We have 
 observed how it fills the national garner, employs the 
 wage earner, and enables him to turn himself into a 
 self-employer, to his country's good. The bounty which 
 
 it brings is under circumstances immense. The 
 
 312
 
 CONCLUSION 313 
 
 boasted " billions " which Prince Bismarck drew into 
 his country from the wealth of France could not, even 
 at the time when they were captured, remotely com- 
 pare, as has often been explained in Germany, with the 
 far more substantial spoils of Schulze-Delitzsch's and 
 Eaiffeisen's peaceful campaign against poverty and 
 backwardness in that same German Empire. Wherever 
 co-operative banks have acquired a firm footing, so it 
 is M. Luzzatti's boast, there is no honest man with a 
 good case who cannot obtain the requisite productive 
 credit. " It is impossible not to acknowledge," so he 
 goes on, "■ that we have delivered the small folk and 
 the middle classes from crushing usury, that we have 
 assisted industry and commerce and, lastly, that we 
 have helped to cultivate throughout the fruitful tree of 
 thrift on ground which previously appeared absolutely 
 barren "—" Thrift by which," in Mr. Gladstone's 
 weighty words, " self-help for the masses is principally 
 made effective. In them thrift is the symbol and in- 
 strument of independence and liberty, indispensable 
 conditions of permanent good." 
 
 M. Luzzatti in a moment of forgetfulness says noth- 
 ing about Agriculture. However it has been shown — 
 and nobody knows this better than M. Luzzatti — that 
 Agriculture has benefited at least as much as Commerce 
 and Industry by the new money-raising force, and has 
 indeed obtained a new lease of life and prosperity, by 
 means of joint action, in most of its ministrations, from 
 Co-operative Credit. The broad acres of Germany, of 
 Italy, of Austria and France, the smiling vineyards 
 and gay gardens of the Continent, the newly raised
 
 314. CO-OPERATIVE CREDIT 
 
 dairies, electric power works and plenty more produc- 
 tive and transforming institutions bear eloquent testi- 
 mony to this. The progress of such Credit has been 
 like the advance, over neglected ground, of a beneficent 
 fairy, in whose footprints flowers spring up and from 
 whose hand drop right and left in abundance seeds 
 charged with blessings, producing luscious plants bear- 
 ing precious fruit. The record of its conquests indeed 
 reads, as Mr. E. W. Kemmerer, of Princeton Univer- 
 sity, writes, " like a fairy tale." 
 
 It is impossible to reckon up its gifts, scattered 
 broadcast over a thirsting world in figures. There are 
 no statistics extant, which are at all complete or trust- 
 worthy. I raised the question of collecting such at the 
 Congress of the French Centre Federatif at Toulouse in 
 1893, when an impulsive chef du cabinet of the French 
 Minister of Commerce of the time rashly promised per- 
 formance on behalf of his Government — which, how- 
 ever, soon discovered that the task was beyond its power. 
 While I was at the head of the International Co-oper- 
 ative Alliance, I laboured to obtain the collection of 
 statistics in various countries by the several co-opera- 
 tive unions established there. We tried our hands at 
 a compilation of statistics in 1896. The result was 
 disappointing. We had secured the collaboration of 
 the very best men in all countries concerned, including 
 the heads of national statistical departments. All 
 these men could produce nothing worth presenting, 
 simply because it overtaxed their powers to make bricks 
 without straw. In 1913 I made a fresh independent 
 attempt, the result of which, as of a further attempt in
 
 CONCLUSION 315 
 
 1914, is embodied in the Yearbook of the German 
 Schulze-Delitzsch Union. But that only contains what 
 I could personally collect. The International Statis- 
 tical Congress, at its last sitting, held at Munich, gave 
 its attention to the subject and appointed a committee 
 to consider whether it could take charge of the task. It 
 is to be hoped that it may see its way to doing so. For 
 certainly it is desirable that the world should learn 
 what Co-operative Credit does for it. Meanwhile we 
 know that less than a thousand Schulze-Delitzsch banks 
 in Germany lend out annually something like $750,- 
 000,000, or more, raised by credit, but raised in the 
 safest conceivable way, thanks to good organisation and 
 conscientious administration — raised cheaply, for the 
 most part by deposits, resulting from the powerful 
 stimulus given to thrift by those " perfected savings 
 banks." 
 
 And all this vast amount of money — a sum that in 
 truth nothing but Co-operation could have brought to- 
 gether from such homely sources — has found its way 
 back, readily and surely, into employment of the most 
 profitable and beneficent kind, where it is bound to do 
 the largest amount of general good, greasing, so to 
 speak, those millions of steadily revolving wheels in 
 the world's machinery, to which it is difficult by other 
 means to apply the lubricating golden oil, but which 
 contribute most largely to the world's productive work 
 and leave most blessings behind. The millionaire's 
 speculative venture may make him the richer by more 
 millions and enable him, like the emperor Vitellius, to 
 feed upon larks' tongues; but it may also land him in
 
 316 CO-OPERATIVE CREDIT 
 
 insolvency. The smaller man's humble work brings 
 abiding comfort and contentment to the million. And 
 it does so surely and naturally. Professor Carver — 
 who, being placed at the head of the newly instituted 
 Eural Organisation section in the United States De- 
 partment of Agriculture, promises with his quick mind 
 and evident energy to do a great amount of good ser- 
 vice to American Agriculture — the other day remarked 
 in a paper read before the "American Economic Asso- 
 ciation," that " it has never yet been sufficiently em- 
 phasised that the function of a co-operative credit 
 association is just as much to refuse credit as to give 
 it." Where does Professor Carver take such impres- 
 sion from? That has been the burden of the daily 
 preaching of all recognised teachers of Co-operative 
 Credit for more than sixty years back! It is just the 
 discrimination among applications which makes this 
 credit so fruitful. That is of the very essence of Co- 
 operative Credit, the foundation stone upon which it is 
 reared up. Its object is to stimulate provident, and 
 to discourage improvident credit. As I ventured to 
 put it more than twenty years ago in an article pub- 
 lished in the " Economic Review," Co-operative Bank- 
 ing deliberately "makes lending in the cases to which 
 it appli'es difficult, in order to make it possible." That 
 of necessity implies refusals — which would be more 
 plentiful if earlier refusals had not happily already 
 graven the wholesome lesson of such testing on men's 
 minds. People do not carry cases into Court upon the 
 principle of which judgment has already been delivered. 
 And that tells, in a manner, the whole story of Co-
 
 CONCLUSION 817 
 
 operative Credit. It has come into the world to do 
 a new thing, to discharge a task which without it was 
 not and could not be performed. It does not come for- 
 ward as a rival to any other institution — except the 
 usurer. It does not aim at crowding out other pro- 
 moters of thrift or credit. The savings banks have 
 suffered no damage by it, as Managers of Savings Banks 
 have particularly assured me. In Italy — in that part 
 of the country in which co-operative banks are strongest 
 — they have brought out their books to show me that 
 the co-operative banks, with all their taking of deposits, 
 have made no inroad upon their own business. The 
 saving which they stimulated was new saving. Neither 
 have joint stock banks suffered damage. Notable 
 bankers like the late Lord Avebury, previously Sir 
 John Lubbock, have openly espoused their cause and 
 publicly pleaded for them — Sir John Lubbock did 
 so in Parliament — as a desirable public benefit. The 
 National Congress of German Bankers, the benches of 
 which were filled for the most part with representatives 
 of large banks, meeting at Munich a few years ago, by 
 resolution declared its opinion to the effect that there 
 is ample room for co-operative banks by the side of 
 their own institutions, and that such banks discharge 
 a most useful public service. American bankers need 
 therefore be in no state of tremor at the coming of Co- 
 operation. They cater for a different class of men, for 
 whom co-operative banks would scarcely be appropriate, 
 just as little as joint stock banks would be appropriate 
 for the "patrons " of co-operative banks. Indeed they 
 act the useful part of feeders and recruiting sergeants
 
 318 CO-OVERATIVE CREDIT 
 
 by joint stock banks, training clients for them, who 
 otherwise would not be brought to their counters, just 
 as the useful little " collecting societies " picking up 
 coppers from humble working folk, train these to be- 
 come customers of the large Savings Banks. The truth 
 is that the world has grown and that the increasing 
 compass of its business has made it necessary in all 
 branches of business to " specialise." We want to 
 " specialise " in banking as in everything else. With 
 the world's growth requirements have multiplied. 
 There are more people in it. And there are plenty 
 more people to-day who desire credit, in comparison 
 with what there were a generation, or two ago. As the 
 man so is the service. A petit mercier petit panier, 
 say the French. Banking, like other interests, in Leon 
 d'Andrimont's words, wants today to be "democra- 
 tised " for the many. The small trader must have 
 credit — well organised bank credit on reasonable 
 terms. The small manufacturer wants it. The farmer 
 wants it very badly — his is the crying need of the day. 
 There is for him, in Thomson's words, " wealth for 
 honest labour," provided that he can procure for himself 
 that whereon to expend his labour. The jobbing ar- 
 tisan stands in need of credit. And so does the work- 
 ing man who, following a natural bent, implanted in 
 him by Providence, like a certain potentate, seeks " a 
 place in the sun " — the sun of independence and self- 
 emplojTnent. All such needs — or most of them — a 
 joint stock bank is not in a position to supply. It aims 
 above the heads of the people concerned and shrinks 
 from handling small change. However the world
 
 CONCLUSION, 319 
 
 wants buggies as well as coaches, and country traps as 
 well as railway trains. There want to be cheap bread 
 and tea shops by the side of the great Waldorf Hotels. 
 The question now claims to be answered: Has this 
 good fairy of Co-operative Credit, so long neglected on 
 the western side of the Atlantic, no good gifts in store 
 for the great American Republic? Is that the only 
 country in which there is no room for it ? One would 
 think that with its teeming millions, its vast treasure 
 of still undeveloped or only partially developed re- 
 sources — such as that immeasurable expense of land, 
 to which for want of working capital, on the unanimous 
 showing of the most competent authorities, quite insuf- 
 ficient justice is being done — with its wealth of only 
 partially employed productive power, and the remark- 
 able energy of its people, brimming over with " ideas," 
 the United States would be the very country of all others 
 for this money coining power. Its record in the prov- 
 ince of combined effort is really unique. The huge 
 number of its associated enterprises termed " co-oper- 
 ative " by its vastness — as I have expressed it else- 
 where — quite takes away the breath of European 
 co-operators. There are such a number of them and 
 their transactions are so huge. That serried host of 
 Building and Loan Societies — depending as a matter 
 of course on associated effort — now that the " na- 
 tional " societies and other abortions have been weeded 
 out, stands one of the peculiar economic glories of the 
 States. And indeed the United States have already, 
 and not unsuccessfully, tried their hand upon the very 
 form of Co-operation now under consideration. Pre-
 
 S20 CO-OPERATIVE CREDIT 
 
 ciselj what those " People's banks " were which in their 
 modest way flourished in some of the States before the 
 Civil War, we cannot to-day quite ascertain, because no 
 record of their organisation and business has been pre- 
 served. J3ut there is a Eeport by a United States Com- 
 mission charged by its Government with an inquiry, 
 into their doings, which shows that with the exception 
 of those located in ISTew York — whose committees were 
 led astray by eagerness for gain into speculation — 
 they answered their purpose and did well in a small 
 way. They were still in their infancy and evidently 
 organised only on a very humble scale. However in 
 the words of the Commission they have " demonstrated 
 beyond doubt that, with equal prudence and intelligence 
 on the part of the lender, loans to ihe induslrious and 
 economical poor are as safe as tJiose made to any class 
 whatever of the rich," 
 
 There could not be a better send-off to the movement 
 now proposed. As for the want of it, one would say 
 that after all that has been set forth by three successive 
 Presidents and a great number of other competent au- 
 thorities, anent the backward state of Agriculture, with 
 its rapid exhaustion of natural fertility, its poor yield 
 of produce and its undeveloped methods — in that 
 province, at any rate, there can be no doubt whatever. 
 And when we look at industrial centres, what do we 
 find? A handful of millionaires and an innum'erable 
 host of have-nots, held in servitude and often slaving 
 for a pittance, making true the saying that their exist- 
 ence " is a being, not a living." Many of these men 
 surely must have " ideas " which, translated into ac-
 
 CONCLUSION 321 
 
 tion, with the aid of borrowed cash, would rapidly fruc- 
 tify into wealth and make repayment easy. The exist- 
 ence of a want cannot therefore really come into ques- 
 tion. There is in fact an actual cry for co-operative 
 credit — inarticulate still, but yet very audible ; and, 
 as lawyers put it, res ipsa loquitur — that is, facts speak 
 for themselves; there is no further need of argument. 
 
 No doubt, in connection with such a state of things, 
 there are in the United States special circumstances to 
 be taken into consideration. In the United States, of 
 all countries, it would not do to " take a German plant " 
 — as I have described the process when speaking of 
 Leon d'Andrimont's pioneer work in Belgium — " and 
 put it into an American pot." Americans will rather 
 want in their own way to follow M. Luzzatti's example, 
 of which he himself says : " We have not copied an 
 institution, but produced a new type, and, impressing 
 upon it the stamp of Italian originality, we have created 
 the handle popolari." 
 
 Well, there is ample scope for that. Justice may 
 even be done to the American predilection for patronis- 
 ing something " of its very own." The principle of 
 Co-operative Credit is hard as adamant and cannot 
 without prejudice be bent or tampered with. That is a 
 matter of business and economics. There must be full 
 security for the giver of money; there must be safety 
 for the intermediate employer of money; there must 
 be government of all, for all, a machine working, in 
 which every spring and every wheel is called upon to do 
 its ovni particular work, so that there may be life dif- 
 fused over all parts ; and there must be, as the soul of
 
 322 CO-OPERATIVE CREDIT 
 
 the whole thing, a highly awakened sense of responsi- 
 bility in all. But in the form of its application Co- 
 operative Credit is as malleable and ductile as soft 
 metal. There already exist a variety of forms such as 
 Schulze-Delitzsch and Raiffeisen never dreamt of. M. 
 Luzzatti recast the production of his venerated " su- 
 preme master " entirely without detriment to its prin- 
 ciple. In India we have had to hammer the system 
 about not a little to make it applicable to the case of the 
 untutored rayat. Ton may choose to-day as you please. 
 You may have shares or no shares, large shares or 
 small, liability limited or unlimited, a large governing 
 body or a small, you may raise money by deposits or 
 by loan, you may lend for a long term or a short. And 
 in all probability there are further modifications still 
 conceivable, such as, to suit American conditions, a 
 cute American may hit upon. It would be the most 
 absurd, suicidal pedantry to want to insist upon a 
 stereotyped form, not to make allowance for local cir- 
 cumstances, which — quite on the contrary — should 
 in every case be the determining factor. Ehineland is 
 thickly peopled, accordingly its rural societies are 
 small. In Finland the population is widely scattered. 
 And there good practical minded organisers have de- 
 tected means of extending districts without prejudice 
 to the working. In the district in Germany in which 
 a long time ago for about six years I owned some prop- 
 erty — where I became a member of the Silesian land- 
 schafi — I have found a Raiffeisen bank made prac- 
 ticable for five separate districts, whereas Raifleisen 
 recommended one for each parish; but the quintuple
 
 CONCLUSION 323 
 
 bank worked well. So it is, once more, with the 
 record of the loans. The German peasantry are afraid 
 at the sight of a promissory note. Accordingly the 
 Eaiffeisen banks make a great jDoint of it that they 
 employ none, as between bank and borrower. In Italy 
 promissory notes are the general rule. You do not 
 want to look at such minor difficulties ; they may easily 
 be swept away. Your Building and Loan Societies 
 were suggested by our British Building Societies. But 
 for a long time, at any rate, they took a very different 
 form — which invested them with all the more interest. 
 In India the same prototype suggested the niddhisj but 
 these, once more, were moulded into a new shape to 
 suit their environment. Hold fast the principle, make 
 yourselves well acquainted with that ! And the rest is 
 all " but leather and prunella." Once you really want 
 co-operative banks, and feel that you want them, your 
 case must be an extraordinary one if the principle can- 
 not be so handled as to suit it. 
 
 Some suggestions for setting to work about this mat- 
 ter it will probably be judged permissible to offer. 
 
 Legislation — by which one need really not set too 
 much store; the main point is that it should not be 
 framed so as to tie societies' hands and create additional 
 difficulties — will, as observed, have to be by States. 
 But it will be a great help to the movement if ex-Presi- 
 dent Taft's suggestion can be acted upon and common 
 principles can be agreed to. To have all banks through- 
 out the Federation alike in their main features — ac- 
 cording to the type adopted — is bound to add to their 
 power and utility. We have seen what a substantial
 
 32i CO-OPERATIVE CREDIT 
 
 increment of strength union has given to the German 
 Schulze-Delitzsch banks in comparison with the Italian 
 handle. To be of the Union is equivalent to a certifi- 
 cate of quality. You know in every instance how your 
 business will be carried out, how you will be treated. 
 The same feature of essential unity ought, if possible, 
 to be communicated to the propagandist movement. 
 There may be rival schemes. But that is an evil to be 
 put up with in the initial stage — in which it may in- 
 deed conceivably be made to serve useful purposes. 
 But it should not be needlessly magnified. In Rhine- 
 land — which is in one sense the cradle of agricultural 
 co-operative credit — at one time, what with the rivalry 
 in progress among five different propagandist associa- 
 tions, each disparaging the other — for various co-oper- 
 ative schools have at times hated one another like cat 
 and dog — people grew so frightened over all this mu- 
 tual backbiting that they felt inclined to set down the 
 whole thing as humbug. And it was mainly to put a 
 stop to this that the Eaiffeisen Union and its epigone, 
 the Imperial Union, combined to a working entente. 
 There will be so much to teach that needless rivalry will 
 have to be deprecated. 
 
 There are Americans, as there have been Europeans, 
 who for the creation of banks look with wistful eves to 
 the State as a helping fairy. Well, in the matter of 
 teaching and preparing the ground Government au- 
 thorities are welcome to render as much help as they 
 please, so long as it is given in the right way. There 
 is no harm in that. It is the husincss activity of co- 
 operative societies, above all of co-operative banks, that
 
 CONCLUSION 825 
 
 the State should carefully keep its hands from. To 
 such an extent may the argument, which is so fre- 
 quently abused, be allowed, that Co-operation promising 
 to prove a public benefit, the community may be made 
 to contribute to its creation. If carried to the length 
 of support in business, such contribution destroys the 
 benefit and converts it into a sore. But in providing 
 facilities for teaching it may have its full swing. 
 
 To return to the point of unity, nothing is likely to 
 further the movement more than its extension over a 
 wide area, in which there are sure to be many heads 
 with differing ideas, a variety of circumstances, and 
 aids and hindrances of different kinds — more espe- 
 cially when the object is by means of common counsel 
 to hammer out of the material provided something that 
 is specifically American. Accordingly an all-Federa- 
 tion movement promises to be distinctly more fruitful 
 than a mere sectional movement. The mere publicity 
 thereby given is likely, by means of the interest awak- 
 ened, to impart a new stimulus. But, apart from that, 
 mind acting upon mind, like steel sharpening steel, and 
 experience here brought into comparison with exper- 
 ience there, may be counted upon to produce good. 
 
 It will be well, next, from the outset to abstain from 
 pitching one's immediate expectations too high. Co- 
 operative credit is an economic force which can ac- 
 complish certain things — performing within such 
 bounds what have rightly been called wonders — but 
 which cannot do more. It is no panacea, no instru- 
 ment to serve for all purposes. The late Ernest Bre- 
 lay — not a co-operator himself ; rather the reverse ;
 
 326 CO-OPERATIVE CREDIT 
 
 but greatly struck with the remarkable successes of 
 Co-operative Credit — declared that there was abso- 
 lutely no limit to its power. And so some ardent co- 
 operators think with him. But in truth that power, 
 large as it is, is distinctly limited; and whoever at- 
 tempts to employ it beyond those bounds is sure to en- 
 counter disappointment. The success of such power 
 is dependent upon certain conditions, in the absence of 
 which Co-operative Credit should not be attempted. 
 There must be a realised want of it; also a readiness 
 to take it up and to make efforts and, it may be, sacri- 
 fices, for its success, under the conviction that that will 
 be to one's own lasting benefit. The ascent is some- 
 times arduous. " You have no idea," so Herr Mager, 
 an Inspector of Banks, some years ago remarked to a 
 Congress of co-operative credit societies, of whose Union 
 he is a Vice-President, " you, none of you, have any 
 idea of the severe struggle that some of the older co- 
 operative credit societies have had to pass through ; 
 but the result is that they are now thoroughly sound 
 societies, which know the value of money ; and we may 
 make quite sure that they will not place any money 
 which we may entrust to them in jeopardy." That is 
 the right spirit. " Vouloir," so laid it down one of 
 the best leaders of the co-operative credit movement, 
 the late Leon d'Andrimont, " voild de grand mot de la 
 Cooperation, sa raison d'etre, la garantie de son succes." 
 Apart from that, there must be an appropriate en- 
 vironment, a congenial organisation of a society. You 
 want above all things touch among intending members. 
 One system permits of large districts, another impera-
 
 CONCLUSION S27 
 
 tively demands small. But, whether large or small, 
 there must be touch ; for there must be control and there 
 must be knowledge of one another, which is impossible 
 without touch. There must, furthermore, be the right 
 sort of employment for credit, and the right sort of 
 people to use it. Without all these things the task is 
 hopeless. 
 
 From what has been said it follows, among other 
 things, that you must not be in an overgreat hurry to 
 form co-operative banks and to look for results. Such 
 banks want to grow out of their own need. Excessive 
 impatience is one of the curses of our age. All well- 
 meaning people, when they have discovered a good 
 thing, burn with impatience to see it covering the 
 earth's surface with its institutions. That has led to 
 many failures and to a great deal of false co-operation 
 which may, like Potemkin's famous dummy villages, 
 satisfy the eye of a credulous and exacting taskmaster, 
 but stand for no genuine improvement. We have seen 
 the matter tellingly illustrated in the British Isles. 
 The idea of co-operative credit was taken up at precisely 
 the same date both in England and in Ireland. In fact 
 E'ngland had the start by about eight months. How- 
 ever people there cared more for results than for prin- 
 ciples. They did not trouble to master the latter. 
 They wanted to see banks springing up out of the 
 ground like Pompey's famous legions, here, there, every- 
 where, casting their blessings abroad, and be able to 
 take credit for such success to themselves. "' Do not 
 tell us about principles," that was the message that an 
 admirably philanthropic captain of industry, then in
 
 328 CO-OPERATIVE CREDIT 
 
 the Commons, sent up to me while I was addressing a 
 gathering of Members of Parliament in a Committee 
 room at Westminster twenty years ago ; " give us the 
 rules ; we will find the money." Now, as it happens, in 
 Co-operative Credit principles stand for everything 
 and money is but a tool which can readily be obtained. 
 Our various propagandist associations, changing their 
 name from time to time, but not their insufficiently in- 
 formed guiding head, laid themselves out for " results," 
 sending uninstructed " organising secretaries " abroad 
 to " form banks." The upshot is that we have after 
 more than twenty years little more than nothing to show. 
 Sir Horace Plunkett, in Ireland, determined to go the 
 opposite way to work. His colleagues, on the Commit- 
 tee of the Irish Agricultural Organisation Society, 
 heckled me on my first propagandist visit to Dublin, as 
 I have never been heckled before or since. They 
 wanted to know everything about every point. The re- 
 sult is that they have correctly mastered the principle 
 — which, as observed, is everything — and easily pro- 
 duced banks, which have done admirable work. Not 
 too many. They cannot make a boastful show of im- 
 posing figures. " Let us have few, if it must be so," 
 that was practically Sir Horace's instruction, " but let 
 those few be good ; provided that they are so they may 
 be trusted in course of time to produce a large host 
 that may be relied upon to serve as useful models." 
 The Registrars in India are proceeding on precisely the 
 same sound principle, walking circumspectly, not as 
 fools but as wise, although they cannot altogether re- 
 strain the tremendous impatience which drives the
 
 CONCLUSION 329 
 
 usury-stricken rayat into seeking relief in co-operative 
 banks. As far as they can they apply the brake of 
 vigilant examination and sifting. Obviously banks 
 carelessly formed or faultily administered are bound to 
 damage the cause and lead people rather to abstain than 
 to follow their example. A bad bank is a snare, be it 
 ever so well endowed or pretentiously patronised. You 
 cannot produce a sturdy plant in a forcing hothouse. 
 And your co-operative banks, to be of any use, want to 
 be as an oak that will " brave the tempest and the 
 breeze." Co-operative banking is not a matter of a 
 " trick." All those State-endowed or patron-led co- 
 operative banks of part of the European Continent — 
 which present so imposing an appearance on paper by 
 their numbers, but make sad the heart of good co-oper- 
 ators, and cost the taxpayers so much money which does 
 not return, while producing mere parasites and leeches 
 — are the result of impatience. Better let the move- 
 ment run its normal course. Those impatient Govern- 
 ments which — rightly enough — desire to favour the 
 cause of what ought to be for the people an unmixed 
 blessing, would have done far better to have sent com- 
 petent teachers about to instruct the people on the 
 principles of co-operative credit — they need grudge no 
 money for that — leaving the people themselves to de- 
 cide whether they would try a bank, than to urge them 
 to form such and to bribe them to it by gifts handed 
 over as such or else presented under the mask of repay- 
 able advances which are not repaid. More haste in this 
 case is likely to prove worse speed. You will not want 
 to see in your country, as has happened in Austria, un-
 
 330 CO-OPERATIVE CREDIT 
 
 der the principle here denounced, 16,953 banks formed, 
 of which 3,660 soon had to shut up shop. Propagan- 
 dists' and organisers' great care should be to form 
 good banks only, in places where banks bid fair to 
 prosper. And all this implies, so it may be well to 
 point out, that the intended teachers should be them- 
 selves first well taught. This is a practical matter, for 
 which mere book-learning and cogitation will not suffice. 
 We of the twentieth century possess this advantage that 
 the ground has been planed for us. We need no longer 
 go about groping our way, as our precursors had to do. 
 There are good banks, tested by experience, in exist- 
 ence, to teach us. That is another mistake that leaders of 
 the movement in England have made. They evidently 
 thought that any one would do to teach the proper 
 methods. We now see how grievously they miscalcu- 
 lated. One of the first and most successful pioneers 
 of the movement in India, Mr. R. Gourlay, having been 
 introduced by me to the heads of most of the various 
 continental Unions, made a point of spending four 
 weeks at Xeuwied, to see the Eaiffeisen svstem at work 
 with his own eyes. And he tells me that nothing has 
 stood him in so great stead in his organising practice 
 as what he learnt there. 
 
 And, next, it is important that every bank formed 
 should have its own peculiar solid foundation. In the 
 race for rapid results we are tempted to think in a 
 wholesale way — form many banks, unite them in one 
 centre and interconnect them in their work and in their 
 liability! That would be a serious mistake. There 
 can be no enduring success on such lines. Of all dan-
 
 CONCLUSION SSI 
 
 gers that which co-operative banks will have to be most 
 careful to avoid is that of interconnected liability. In 
 co-operative banking everything depends upon " divid- 
 ing down " responsibility which means liability ; and 
 of such liability every one who undertakes it ought to 
 be absolute master. They have a homely word in Ger- 
 many, much used by way of warning in this connection, 
 which is intended to describe the condition of banks 
 interconnecting their liability. It is 7'attenJcdnig, 
 " king-rat," that is, the rat which has gobbled up all 
 the other rats and has thereby become a deadly terror 
 to the murine species, since it is given to murine can- 
 nibalism. It is the bad bank which will in this way in 
 the end in the same way gobble up the good ones, sup- 
 posing that they are confiding enough to pool their lia- 
 bility with that of the bad bank. Union is a capital 
 thing, in the present connection as in others. It is 
 really only Co-operation carried one step further, and 
 is therefore in full keeping with our general task. But 
 it should come in the shape of a federation which leaves 
 every unit standing upon its own financial foundation, 
 answering for itself. That is why central banks should 
 not be formed with other than strictly limited liability. 
 But in any case Union cannot come until there are 
 units to unite. It is the good, sound bricks which 
 make the enduring building. You may raise up a wall 
 with jerry bricks kept together by the mortar which 
 unites them. But that wall will not stand. Co-opera- 
 tors aim at something that may be relied upon to en- 
 dure, and in it every brick wants to be of good sound 
 quality, and able to answer for itself. If there is to
 
 SS2 CO-OPERATIVE CREDIT 
 
 be a central bank, such bank will have to consist of in- 
 dependent banks each staking its own limited share and 
 retaining control over its own liability. A central bank 
 which is not managed by its own constituent members is 
 not a central bank at all, but a foreign institution, just 
 doing business with co-operative banks as standing out- 
 side their host ; and, if treated as a central bank, it may 
 become a danger. 
 
 The ground being, as we will assume, found favour- 
 able for an experiment in co-operative banking, an im- 
 portant question to decide will be what form the co- 
 operative bank proposed is to take. 
 
 Now that question really, as matters stand, divides 
 itself into two. For there is the preliminary point to 
 deal with, whether preference should be given to mort- 
 gage credit or else to personal ; and after that the point 
 will have to be decided which particular type of bank 
 to select. 
 
 In the United States at the present time opinion 
 appears to be keenest in favour of mortgage credit. In- 
 deed the entire agitation now in progress appears to 
 have taken its rise in dissatisfaction with existing ar- 
 rangements for real estate credit; and to that extent 
 the claims of personal credit are in some danger of 
 being overlooked or at any rate more lightly appraised 
 than they deserve. Mortgage credit has here already 
 been dealt with in a separate chapter, and there reasons 
 have been given, or suggestions made, why mortgage 
 credit had, perhaps, in its earliest stages be left rather to 
 capitalist than to co-operative enterprise. Not that there 
 are not excellent co-operative mortgage credit societies.
 
 CONCLUSION 3S5 
 
 However their number is comparatively small, and 
 where they exist they have been called forth by special 
 circumstances such as do not to the writer appear to 
 exist in the United States. To judge from what Amer- 
 ican writers say on the subject, when praising up the 
 landschaft as the model to be followed, what they really 
 mean to plead for is the principle of raising money by 
 debentures or bonds, so as to make the provision of any 
 share capital of any importance unnecessary, and plac- 
 ing such bonds, in return for mortgages of equal value, 
 where they cannot, except for default, be called in by 
 the lender and will be repayable like terminable rent- 
 charge. Now for such practice you do not need a 
 landschaft at all, with its antiquated feudal-bureau- 
 cratic organisation, its scarcely constitutional priv- 
 ileges, and its necessarily cumbrous methods — which 
 are really what puts a distinctive stamp upon a land- 
 schaft. Other bodies may raise money and lend it out 
 on precisely the same principles, without all that old- 
 world hocus pocus. The Danish mortgage societies, to 
 state one instance, are not landschaften at all, although 
 they have been classed as such by some American writ- 
 ers insufficiently informed. They are democratic co- 
 operative bodies of an entirely modern cut. If you de- 
 cide to have corporate bodies of what you are pleased to 
 call the landschaft type right from the start, for dealing 
 out mortgage credit, it is these rather that you should 
 take as a model than the lumbering and clumsy German 
 landschaften, which have done well nowhere except 
 where there are magnate rule and Crown patronage, as 
 in Germany and in Hungary. It is quite true that in-
 
 334> CO-OPERATIVE CREDIT 
 
 dividual capitalists cannot deal in mortgage credit on 
 landschaft lines. Only a body with more or less per- 
 manent life can do that. However joint stock mort- 
 gage banks are in a position to serve their public in 
 pi*ecisely the same way as landscliaften, securing them- 
 selves by contract as landscliaften are secured by anti- 
 democratic privileges — more particularly under mod- 
 ern law, which has provided expeditious processes for 
 urgent cases. And such companies bid fair to prove 
 more congenial to American habits and temperament 
 than feudalized landscliaften. Eulogists of the latter 
 admit that the methods of the companies are as efficient 
 and that their credit is as cheap as in the case of land- 
 scliaften — more businesslike organisation of a modem 
 type making up for the special advantages accorded to 
 landscliaften. Things in America appear still, at any 
 rate in many sections, in too unsettled a condition to 
 justify a rush-in at once of Co-operation. Of all 
 agencies Co-operation necessarily is most exacting in the 
 requirement of settled conditions, just because it is a 
 union of persons, not of capitals — of persons, who 
 want more or less to know one another, who want to be 
 able to trust one another, and who want to know that 
 they are acting together for a certain length of time, as 
 a permanent association. Once capitalism has ex- 
 plored the ground and detected its dangerous spots, it 
 will be quite time enough for Co-operation to come in, 
 if there is a disposition for it, as a competing force. 
 By such time very possibly its peculiar postulates will 
 have been satisfied. So best let others try the thickness 
 of the ice.
 
 CONCLUSION 335 
 
 For mortgage credit neither Schulze-Delitzsch nor 
 Eaiffeisen banking will be advisable, save in quite ex- 
 ceptional cases and for short terms only. In respect of 
 personal credit the choice practically lies between them. 
 You may adapt them in form. But there has no suc- 
 cessful attempt thus far been made to get away from 
 them or to intermingle them^ and it is difficult to see 
 how either the one thing or the other could be done 
 without detriment. The fundamental principles of 
 credit are everywhere the same. And the formal ap- 
 plication given to them must be consistent in itself. 
 You cannot take a little of one and a little of the other, 
 combine, as it is sometimes put, " the best features " — 
 which means the features which most please your fancy 
 — " of one system with those of the other." Such 
 attempts invariably end in an economic parallel to the 
 famous construction of a supposed ideal human body 
 out of selected parts familiarly associated with the 
 name of " Frankenstein." In each system every partic- 
 ular part possesses its own specific justification and 
 raison d'etre. It supplements other parts. It cogs 
 into them like one wheel in a piece of machinery into 
 another, l^ot only is this so, not only is each system 
 compact and complete within itself, but people will 
 have to understand to a greater extent than appears to 
 be the case at present that one system suits one particu- 
 lar set of circumstances, the other another. The two 
 are like a workman's implements, one of which is em- 
 ployed for one purpose, the other for another, neither 
 being interchangeable. 
 
 Public opinion in the United States is at present evi-
 
 336 CO-OPERATIVE CREDIT 
 
 dently very much taken up with the merits — rightly 
 enough freely extolled — of the system of Eaiffeisen. 
 That system has indeed great triumphs upon which to 
 pride itself, and constitutes a truly admirable machine 
 for what Mr. Gladstone, as already shown, has called 
 " man-making." That is its object. Just as Mr. Glad- 
 stone in the saying already quoted — which, by the way, 
 was (phonographically) addressed to an American audi- 
 ence — placed " thrift " — that is, the improvement of 
 the material circumstances of a man — as the first 
 prerequisite to " man-making," so Eaiffeisen bases his 
 own conquest of man for higher purposes upon the bet- 
 tering of his economic position. To be full " man " 
 a man must be independent and master of his own ac- 
 tions. Twenty years ago the late General Booth im- 
 pressed me for the rather difficult task of devising rules 
 for Eaiffeisen societies to be formed in India under 
 Salvationist authority which, so far from being demo- 
 cratic, as Eaiffeisenism demands, is strictly military. 
 " My difficulty," so he explained, " is this : as soon as 
 my officers succeed in gaining over a native for Chris- 
 tianity, the all-powerful, omnipresent usurer steps in 
 with his unanswerable veto : if you become a Christian, 
 I sell you up. Now, to meet this, we must have your 
 banks." The scheme then failed, because it formed 
 part and parcel of a much vaster and more ambitious 
 scheme of land settlement on a larger scale, which 
 proved impracticable. However General Booth's esti- 
 mate of the situation in India appears fully borne out 
 by the magnificent spread of co-operative banking — 
 mostly of the Eaiffeisen type — in India at the present
 
 CONCLUSION 337 
 
 day, in which, it may be added that Christian mission- 
 aries of all creeds — Church-of-England, German Luth- 
 eran and Eoman Catholic — take their proper part. 
 In one way or another that unfortunate servile de- 
 pendence upon the dollar shows itself everywhere. 
 Europe has, as Gustav Freytag has shown, its own type 
 of " slave life," and so has America — as crop liens, 
 store liens and corn, fruit and cattle rings testify. 
 Therefore if man is to be turned into true " man," first 
 of all his material condition will have to be bettered. 
 However Eaiffeisen's real aim lies beyond that, in the 
 creation of a man who, as the late D. Schloss — who 
 was not anything of an enthusiast — expressed it, " has 
 the fear of God before his eyes." Eaiffeisen's work 
 also is, as the German Chancellor, Herr von Bethmann 
 Hollweg, has put it, eminently " detail work." It 
 busies itself about little things, being done, in every 
 single instance, on a small scale. It requires personal 
 influence of one man upon another. Therefore it is 
 applicable only in small districts. Eaiffeisen put the 
 ideal district at an area with about 400 population, 
 by preference a single parish. And so highly did he 
 rate personal influence that he laid it down that, once 
 a good chairman was found and a good secretary or 
 accountant, work might forthwith be begun, looking 
 for others to " fall in " as time went on. There could 
 be no greater mistake than to put this type of bank into 
 requisition for purely business purposes, more particu- 
 larly on a large scale. ISTevertheless in noble-minded 
 people the temptation to do so is evidently strong. In 
 England, some eighteen years ago, I was urged by a
 
 338 CO-OPERATIVE CREDIT 
 
 great philantliropist of the religious sort, the late Dr. 
 Paton, to come to his town, Nottingham, and there to 
 assist in the promotion of a Eaiffeisen bank in a rather 
 distant suburb. A visit there satisfied me that that 
 was the last place for a Eaiffeisen bank to work in. 
 However nothing would content the reverend doctor, 
 with his philanthropic notions except " Eaiffeisen." 
 The scheme, of course, did not " come up." On suit- 
 able ground there is nothing more admirable, nothing 
 more effective than a Eaiffeisen society. The sight 
 of its work carries one away with enthusiasm. It 
 gathers local people together like a hen clucking her 
 chickens under her wing, and it reforms them and ele- 
 vates them. I have told elsewhere the story of the 
 village of Frankenheim in Thuringia. It was at one 
 time a veritable pest hole. The inhabitants were of the 
 roughest sort. ISTo one would trust himself into their 
 company. They were given to thieving and fighting 
 and cheating, and there was scarcely a misdeed per- 
 petrated in the district which was not set down to them 
 as a matter of course. As a matter of course also they 
 were miserably poor. They dwelt in ramshackle hovels 
 which were, like their poor skin-and-bone cattle, pledged 
 roofhigh to the usurer. In pity the consort of the sov- 
 ereign of the land, the late Grandduchess of Saxe Wei- 
 mar, set up model cottages for these people to live in 
 at a nominal rent — $7.50 a year. It was all to no 
 purpose. The men would not rent the cottages, nor 
 reform. A painstaking clerg}Tnan, who afterwards be- 
 came one of the pillars of the Eaiffeisen connection, 
 came into the parish. He started a Eaiffeisen society.
 
 CONCLUSION SS9 
 
 took a personal interest in the people, showed them 
 how to get rid of the usurer, how to set up their own 
 new dwellings, by their o^^vn efforts, at a terminal rent- 
 charge five or six times as high as the Grandduchess' 
 rent, taught them how to improve their agriculture and 
 to secure better cattle — and the whole face of things 
 has become changed. There is now no better conducted 
 and better conditioned village under the sun than 
 rrankenheim. Similar instances might be quoted in 
 plenty from all parts of Europe. And under the Eaif- 
 feisen system people become bound together, as a Hun- 
 garian Professor has expressed it, " with the link of 
 true brotherhood." 
 
 Where you have work of a different kind to ac- 
 complish, you will have to seek in your tool chest for 
 a different instrument. The knife for cutting and the 
 saw for sawing. The system originated, in two par- 
 allel forms, but on the same principle and with the 
 same end in view, severally by Schulze-Delitzsch and 
 Luzzatti aims only indirectly at " man-making," in Mr. 
 Gladstone's sense of the word. Good economics, as the 
 Italian statesman Minghetti has put it, indeed have a 
 natural tendency to produce also good morals, and M. 
 Luzzatti would have the " character " of its members 
 rank as the best security of a co-operative bank. But 
 the direct aim is to do the possible best with every man's 
 dollar, to make that go further, with a view to adding 
 more dollars to it. The foundation of the system is 
 capital — small capital at first, to be made available 
 for better work by union, but to be steadily and syste- 
 matically added to as a matter of principle. Eaiffeisen
 
 340 CO-OPERATIVE CREDIT 
 
 began without capital and worked up to it by means of 
 that unlimited liability which, one is thankful to find, 
 is likely to have fewer difficulties to contend with in the 
 United States than it has had in England. For in a 
 Eaiffeisen bank unlimited liability is indispensable. 
 That intermediate form of liability which is so common 
 in the United States, as it is on the European Conti- 
 nent, which makes a shareholder liable for something 
 more besides his paid-up share, must prove a valuable 
 help to banks of this more purely businesslike type, be- 
 cause it gives the lender after all more ample security 
 for his money. It is, by the way, a great mistake to 
 suppose, as is stated in one or two American books, 
 that co-operative banks based upon shares all have lim- 
 ited liability only. The majority of those German 
 co-operative banks, which take the lion's share of the 
 banking output, are based upon unlimited liability, and 
 pride themselves upon it. And so are many Austrian 
 banks. This system recks little of districts and bound- 
 aries. It know^s how to overcome difficulties of space. 
 No more does it depend upon small numbers. You 
 may form banks under it of any size. And its societies 
 become more of real " banks " — by reason of a variety 
 of services — than those of the other. It is a great 
 mistake to suppose, as some people do, that their system 
 is not applicable to Agriculture. Under it, indeed, 
 more money has been dealt out to Agriculture than un- 
 der the Raiffeisen system, but in a more lumpy way 
 and to, in the main, a different class of farmers, with 
 more possessions of their own. Cremona, Eovigo,
 
 CONCLUSION 341 
 
 Augsburg, Insterburg, Cosel, Gotba and more besides, 
 are evidence of this. 
 
 The proper environment for each system being so 
 clearly marked out, the choice of one to follow ought 
 not really to present any serious difficulty. Very little 
 study of the two systems and of the particular circum- 
 stances of a district ought to suffice to determine that 
 point. 
 
 There is one more point to consider. A question has 
 lately been put forward in American literature on a 
 subject which has occasioned not a little discussion in 
 Europe, namely, whether co-operative trading had or 
 had better not be combined with co-operative banking. 
 As a general rule it will be best to keep the two things 
 entirely distinct. Certainly this ought to be so wher- 
 ever either banking or trading assumes at all substan- 
 tial proportions. The great discussion in Europe arose 
 over the combination of the two kinds of business in 
 certain central organisations, in which it certainly was 
 out of place and has also, on the ground of unsatisfac- 
 tory results, been discontinued. Kaiffeisen made his 
 little village societies veritable " maids-of-all-work " 
 for his people — in part just because the societies were 
 so small that no serious inconvenience was likely to 
 arise from the combination. One staff would be suf- 
 ficient for all purposes, and not every village will be in 
 a position to produce more than one staff. On that 
 ground also we have — thus far unsuccessfully — 
 claimed trading powers for Kaiffeisen societies in Ire- 
 land. And there is another reason which has im-
 
 342 CO-OPERATIVE CREDIT 
 
 pelled us. Eural Ireland is the special hunting ground 
 of a particularly grasping class of men locally known 
 as " gombeenmen " — the traders who lend money and 
 buy and sell goods, and who do all this business at a 
 rate of profit to themselves which sucks the very life- 
 blood out of their victims and holds them in perpetual 
 peonage. Our banks oust him from his coign of van- 
 tage in money dealing. However he knows how to 
 make up for that in dealing in goods. At the same 
 time some of our little banks, advisedly charging low 
 terms, net little of an annual surplus. Trading would 
 yield them a certain profit. For we have a great Co- 
 operative Wholesale Society to buy from, which deals 
 liberally with small societies. The rate of surplus 
 realised on distribution is now as a rule about 10 per 
 cent. This would be a great help towards banking 
 and towards co-operation in Agriculture generally. 
 Unfortunately the Irish country trade is rather numer- 
 ously represented on the Irish benches in Parliament, 
 and those who represent it do not like to think of hav- 
 ing the not very creditably gotten bread taken out of 
 their mouths. In America it must depend upon local 
 circumstances and upon the size and nature of banks 
 whether it is opportune and legitimate to combine the 
 two classes of business. Certainly such combination 
 should not be carried above the smallest class of socie- 
 ties. In that class it may be of advantage in banks 
 formed on Raiffeisen lines. 
 
 What with a general disposition leaning to common 
 action, with a tolerant mind with regard to liability
 
 CONCLUSION 343 
 
 and with an acknowledged want of more ample work- 
 ing funds, one would think that circumstances in the 
 United States must be distinctly favourable to the for- 
 mation of co-operative banks. Whether the result is 
 destined to be as fruitful as the general aspect of things 
 would suggest, can be decided only by practical experi- 
 ment. Were such experiment made — and it could not 
 in any case lead to serious loss — its development might 
 be relied upon soon to indicate at what points of the 
 European system modifications are desirable to meet 
 American conditions. But the safest plan, so one 
 would think, must be to begin with that which has 
 already proved so richly successful everywhere, under 
 every skv, amid all races and for all classes of the 
 humbler sort of businessmen. Whoever knows what 
 enormous, most valuable services Co-operative Banking 
 has it in its power to render, cannot indeed resist a 
 feeling of astonishment at the fact that the United 
 States, the chosen home of enterprise, the beehive of 
 business with its many millions of workers, has gone 
 without it so long. Providence appears to have called 
 commandingly for its introduction by the discovery 
 made that American Agriculture is retrograding in- 
 stead of advancing, that fertility is being exhausted, 
 agricultural enterprise underpaid, and that the whilom 
 granary of the world stands in danger of becoming de- 
 pendent for food upon other, more thinkingly strenu- 
 ous, nations. Please God, Co-operative Banking may 
 carry relief and improvement with it! After what it 
 has accomplished elsewhere, there seems indeed ground
 
 344 CO-OPERATIVE CREDIT 
 
 for hoping that to America likewise it will bring those 
 gifts, that wealth diffused among the many, and stimu- 
 lus to enterprise, which tend to make a prosperous and 
 contented nation. 
 
 TWE END
 
 INDEX 
 
 Abuses, 77, 81, 139, 153, 155, 
 
 161, 180, 181, 182, 190, 
 
 202, 204. 
 Acceptances, 136. 
 Accountancy (skilled), 189. 
 Advances on shares, 80, 81, 
 
 82. 
 Agricultural bank of Egypt, 
 
 152. 
 Agricultural co-operation, 279. 
 Agricultural credit, 49, 93, 98, 
 
 102, 103, 109, 110, 111, 
 
 182, 184, 205, 209, 313. 
 Difficulties in connection 
 
 with, 14, 16, 21, 59. 
 Agricultural decline, 9, 10. 
 American commission, 1, 62, 
 
 118. 
 d'Andrimont, L6on, 60, 70, 85, 
 
 321. 
 Annual report, 126. 
 Audit, 89, 158. 
 Augsburg bank, 93. 
 Austria, 73, 210. 
 Avebury, Lord, 217. 
 
 Bad banking, 329, 330. 
 Balance Sheet, 56, 106. 
 Balancing centre, 137. 
 " Bank chain to kill usury," 
 
 21. 
 Bank money, employment of, 
 
 74. 
 Bank of borrowers, 43, 65. 
 Banks to assist co-operative 
 
 societies, 84. 
 
 346 
 
 Banques populaires (French), 
 178. 
 
 Belgium, 26, 60, 70, 85, 88, 
 90, 91, 181, 263, 321. 
 
 Bethmann-Hollweg, von, 109, 
 337. 
 
 Bills of exchange, 75, 136. 
 
 Blanqui, 14. 
 
 Boerenbond (Belgian), 195, 
 263. 
 (Dutch), 196. 
 
 Book keeping control, 163. 
 
 Building and loan associa- 
 tions, 21, 41, 64, 319. 
 
 Bulgaria, 188. 
 
 Burghardt Du Bois, Mr., 68. 
 
 Canada, 25, 289. 
 
 Capital of guarantee, 64. 
 
 Carver, Professor, 316. 
 
 Cattedre ambulanti, 215. 
 
 Caution, 58, 61, 87, 127. 
 
 " Catholic " banks ( Italy ) , 
 
 194. 
 (Switzerland), 196. 
 Censeurs, 90. 
 Central banks, 134, 137, 139, 
 
 140, 144, 178, 181, 201, 
 
 332. 
 Chattel mortgages, 20. 
 Character, its banking value, 
 
 31, 47, 48. 
 Clashing of interests, 21. 
 Control, 57, 87, 89, 127, 158, 
 
 162. 
 Consumers' credit, 3.
 
 346 
 
 INDEX 
 
 Co-operation, 24, 25. 
 Co-operation in agriculture, 
 
 279. 
 Co-operation, its limits, 275, 
 
 326. 
 its triumphs, 65, 274, 326. 
 in the United States, 28. 
 Co-operative banking different 
 
 from other banking, 165. 
 Co-operative banks in the 
 
 United States, 28, 320. 
 Co-operative banks financing 
 
 dairies, 85. 
 Co-operative credit, need of it, 
 
 1, 4, 5, 7, 11, 13, 16, 22, 
 
 23, 24, 32, 39. 
 its object, 30. 
 its principles, 31, 41, 48, 
 
 61, 91, 98, 99, 100, 117, 
 
 321. 
 in Austria, 73, 210. 
 in Belgium, 26, 60, 70, 85, 
 
 88, 89, 90, 91, 181, 263, 
 
 321. 
 in Bulgaria, 185. 
 in Canada, 25, 289. 
 in Egypt, 178. 
 in Finland, 201, 212. 
 in France, 83, 116, 184, 185, 
 
 205. 
 ' in Germany, 82, 88, 90, 98, 
 
 132, 136. 
 in Hungary, 108, 179, 192, 
 
 201. 
 in India, 25, 27, 96, 122, 168, 
 
 200, 214, 334. 
 in Ireland, 163, 328, 342. 
 in Italy, 26, 72, 74, 77, 81, 
 
 84, 86, 90, 92, 93, 105, 
 
 132, 164,' 173, 194, 269. 
 in Japan, 25. 
 in Mauritius, 25. 
 among Poles, 143, 172. 
 in Roumania, 166, 211. 
 in Russia, 26, 213. 
 
 in Serbia, 184. 
 
 in Transylvania, 184. 
 
 in the United States, 300. 
 
 its practice, 42, 43, 103, 
 
 117-125. 
 effective, 22, 103, 106, 272, 
 
 312, 315. 
 damages no one, 317. 
 its variety, 20, 176, 312. 
 its out-turn, 25, 27, 315. 
 a feeder to other banks, 
 
 317. 
 its economic effects, 4, 6, 7, 
 8, 21, 27, 40, 41, Go, 272, 
 312. 
 its educational effects, 104, 
 107, 122, 274, 284, 286. 
 Co-operative production, 278. 
 Co-operative wholesale society's 
 
 bank, 135. 
 Council of supervision, 57, 58, 
 
 87, 113, 125, 158, 159. 
 Credit to be personal, 50, 103. 
 Credit (non-co-operative), 75. 
 Current accounts, 75, 190. 
 
 Danish mortgage societies, 244. 
 
 Dealers' credit, 20. 
 
 Dealings in land, 128. 
 
 Decline of American agricul- 
 ture, 9, 10. 
 
 Democratisation of credit, 48, 
 318. 
 
 Deposits, 43, 67, 116. 
 
 Dharma golas, 102. 
 
 Difficulties of beginning, 326. 
 
 District management, 93, 94. 
 
 Dividend rates for risk, 69, 
 70. 
 
 Dividend (excessive), 70. 
 
 Dividend hunting, 180. 
 
 Dividend on business, 181. 
 
 Durand, Louis, 116, 184, 185. 
 
 Dock warrant credit, 83.
 
 INDEX 
 
 347 
 
 Educational effects of co- 
 operative credit, 104, 107, 
 122, 274, 284, 286. 
 
 Effective co-operative credit, 
 22, 103, 106, 272, 312, 
 315. 
 
 Egypt, 170. 
 
 Election of members, 48. 
 
 Endowment fund, 127. 
 
 Entrance fees, 45. 
 
 Equal rights for all, 79. 
 
 Farmers' credit, 49, 93, 98, 
 102, 103, 109, 110, 111, 
 182, 184, 205, 209, 313. 
 
 Farms, size of, 16, 17. 
 
 Ferraris, Hon. Maggiorino, 60. 
 
 Financial rating, 53, 54, 77, 
 78, 79. 
 
 Finland, 201, 212. 
 
 Fortunato, Giustino, 2, 72. 
 
 " Forty per cent, interest," 20. 
 
 French co-operative credit, 83, 
 116, 184, 185, 205. 
 
 Friendly societies' act (Brit- 
 ish), 82, 294. 
 
 Germany, 82, 88, 90, 93, 132, 
 
 136. 
 Gladstone, W. E., on 
 
 "Thrift," 313. 
 
 Haas, Dr., 108, 186, 187. 
 Haas banks, 108, 188, 190, 
 
 204. 
 Haas central bank, 147, 151, 
 
 154, 155. 
 Haas system, 108, 186, 189. 
 Hov\r to learn co-operative 
 
 banking, 330. 
 How wealthy men may help, 
 
 107, 108, 182. 
 Hungary, 108, 179, 192, 201. 
 
 Imperial union of Germany, 
 
 186, 188. 
 India, 25, 27, 96, 122, 163, 200, 
 
 214, 284, 334. 
 Industrial and provident 
 
 societies' act (British), 
 
 82, 294. 
 Industrial co-operative banks, 
 
 59. 
 Inspection of banks, by Gov- 
 ernment, 171. 
 by central banks, 155. 
 by unions, 161, 162, 171, 
 
 173. 
 Interest, rate of, 49, 61. 
 Italian co-operative banks in 
 
 United States, 300. 
 Italy, 26, 72, 74, 77, 81, 84, 
 
 86, 90, 92, 93, 105, 132, 
 
 164, 173, 194, 269. 
 
 Japan, 25. 
 
 Kemmerer, Prof. E. W., 314. 
 Kreditanstalt (Leipzig), 233. 
 
 Landschaften (Prussian), 218, 
 229-249. 
 (Swedish), 228. 
 ( in Southern Germany ) , 
 229. 
 Landwirtschaftlicher, Kredit- 
 
 verein (Saxony), 254. 
 Large districts, 93. 
 Legislation, 26, 289. 
 in Austria, 87, 296. 
 in Germany, 82, 87, 162, 
 
 173, 179, 296. 
 in Massachusetts, 293, 301. 
 in New York, 293, 302. 
 in Texas, 293. 
 in the United Kingdom, 
 
 213. 
 in the United States, 290, 
 297, 301, 302.
 
 348 
 
 INDEX 
 
 in Wisconsin, 297. 
 Leipzig bank, 93. 
 Lending made difficult to make 
 
 it possible, 316. 
 Liability (limited), its ad- 
 vantages, 69, 75. 
 limited, in Raiffeisen banks, 
 
 109, 186. 
 exceeding value of shares 
 
 subscribed, 69. 
 not to be interconnected, 
 321. 
 Limitation of dividend, 65. 
 "Loan of honour," 92. 
 Loans, 49, 79, 81. 
 Luzzatti, Hon. Luigi, 26, 48, 
 65, 72, 74, 90, 92, 127, 
 132, 164, 311, 313, 321. 
 
 Manuale per le banche popo- 
 
 lari, 72. 
 Massachusetts credit unions 
 
 law, 298, 301. 
 Mauritius, 25. 
 Maximum of publicity, 54, 
 
 56. 
 Mentone Co-operative Bank, 
 
 57. 
 Micha, Alfred, 181. 
 Milan Co-operative Bank, 56, 
 
 65, 93. 
 Mixed membership, 59. 
 Monti Frumentari, 102. 
 Morier, Sir R., 54, 56. 
 Morris banks, 25. 
 Mortgage banks (joint stock), 
 
 233, 247. 
 Mortgage credit, 20, 75, 82, 
 
 103, 216, 233, 234, 2CG, 
 
 332, 335. 
 by Belgian Boerenbank, 263. 
 by Rhenish Landbank, 206. 
 Mortgage Exchange ( Berlin ) , 
 
 234. 
 
 Mortgage inquiry in Russia, 
 234. 
 
 Mortgage institutions in Ba- 
 varia, 259. 
 in Russia, 236. 
 
 Mortgage societies in Den- 
 mark, 244. 
 
 National banks, 19, 23, 24. 
 Need of co-operative credit, 
 
 1, 4, 5, 7, 11, 13, 16, 22, 
 
 23, 24. 
 New York co-operative law, 
 
 293, 302. 
 No shares, no entrance fees, 
 
 107. 
 
 One man one vote, 61. 
 Organisation, 86, 87, 88, 91, 
 98, 99, 100, 111, 112, 120. 
 Overdrafts, 75, 190. 
 
 Pawnbroking establishments as 
 mortgage banks, 238. 
 
 Payment of officers, 92, 114. 
 
 Peasants' associations, 195. 
 
 Pledge credit, 3, 51, 86. 
 
 Plunkett, Right Hon. Horace 
 C, 199, 295, 328. 
 
 Polish co-operative banks, 61, 
 143, 172. 
 
 Positos, 102. 
 
 Poulett Thompson's rule, 75. 
 
 Preference for small appli- 
 cants, 83. 
 
 Private banks, 19, 23, 24. 
 
 Private capitalists' mortgages, 
 232. 
 
 Productive cooperative so- 
 cieties, 84. 
 
 Proportion or sliare to loan 
 capital, 74, 81, 82, 83. 
 
 Raiflfeiaen, F. W., 96, 98, 100.
 
 INDEX 
 
 349 
 
 Raiffeisen system, 96, 98, 102, 
 103, 104, 107, 144, 178, 
 181, 280, 336, 338. 
 
 RaiflFeisen central bank, 144. 
 
 Raiffeisen banks in France, 
 116, 184, 185. 
 in Italy, 184, 
 
 Record of loans, 88. 
 
 Rediscounting bills, 68, 136. 
 
 Remedial loan societies, 21. 
 
 Renewals, 15. 
 
 Reserve fund, 45, 67, 127. 
 
 Risks, 75, 86. 
 
 Roumania, 166, 211. 
 
 Rural credits, 93, 95, 98, 102, 
 103, 109, 110, 111, 182, 
 184, 205, 209, 313. 
 
 Russia, 26, 213. 
 
 Russian mortgage institutions, 
 236. 
 
 Savings, 42, 46, 55, 67, 68, 
 
 117. 
 Schulze-Delitzsch, Dr. H., 65, 
 
 71, 72, 73, 97, 100. 
 Schulze-Delitzsch system, 42, 
 
 71, 74, 78, 87, 90, 92, 178. 
 Schweizerische Volksbank, 71, 
 
 81, 178. 
 Scotch cash credit, 32-40. 
 Security, 6, 18, 47, 50, 52, 80, 
 
 83, 124. 
 Shares, 73, 74, 116. 
 
 limitation of holdings, 72. 
 Share capital, 61, 03, 66, 68. 
 Sindaci (in Italy), 90. 
 Small trade, 23.' 
 Societies borrowing powers 
 
 act (United Kingdom), 
 
 295. 
 Statistics of co-operation, 314. 
 Southern commercial congress, 
 
 1. 
 
 Sorgel, Parisius & Co., 135. 
 Strictness in recovery of loans, 
 
 126. 
 Sureties, 53, 54, 55, 75. 
 State banks, 19, 23, 24. 
 State aid, 179, 180, 189, 191, 
 
 198, 202, 204, 210, 324. 
 State Endowed Central Bank 
 
 of Prussia, 142, 151, 154, 
 
 191, 199, 204. 
 Store liens, 19. 
 Switzerland, 71, 72, 81, 121, 
 
 178. 
 Syndicats agricoles (France), 
 
 192, 193, 209. 
 
 Tapping the open market, 
 
 138, 151. 
 Texas co-operative law, 293. 
 Torrens system, 268. 
 " Trade credit societies," 179. 
 Trading by credit societies, 
 
 341. 
 Transylvania, 184. 
 
 Union inspection of banks, 
 
 162, 166, 171, 173. 
 Union congresses, 172. 
 Unions of banks, 131. 
 United States, peculiar con- 
 ditions in, 27. 
 co-operation in, 300. 
 co-operative banks in, 28, 
 300. 
 
 Vigand, F., 2. 
 
 Wider co-operation, 294. 
 Wilson, Hon. J. H., 9. 
 Wisconsin co-operative law, 
 
 297. 
 Withdrawals, 81, 82, 111, 112. 
 Wollemborg, Dr. L., 184, 209.
 
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