Mr. Laboringman: Mr. Farmer, in all that you have said you have not once even mentioned Credit Unions or Mutual Credit societies. I had been betting on you to help me out in my fight for a recognition of the principle of coöperation, but it looks as if you had deserted me.
Mr. Farmer: No, Mr. Laboringman, on the contrary, I will do anything in my power to help you or anyone work out the great saving principle of coöperation; but since I have been attending these talks two or three things have stuck in my crop and I could not get them out even if I tried, and one thing in particular applies especially to the agricultural societies, called credit unions.
Mutual credit societies or credit unions are organized to furnish capital for production; that is, it is commercial capital, or credit for commercial purposes, not for investment purposes at all. Not a single dollar of a credit union should ever be loaned upon real estate. Not a single dollar! Not a single cent!! Such a practice would literally destroy the principle upon which they are founded; mutual aid to assist in production, not investment. Don't you remember how Mr. Banker pounded that into us; and convinced us all, too? But more convincing than anything else as to this great economic truth, that not one single dollar of credit union money should ever be loaned upon land, is the history of them. We must not forget that they were organized to secure personal credit and to depart from that practice is a perversion of their purpose and just to that extent must result in failure.
The coöperative idea for personal credit was originated in Germany by Francis Frederick Schulze, a little before the middle of the nineteenth century. It passed over into Austria and Hungary in 1851, into Italy in 1860, into Belgium in 1864, into France in 1883, into Scotland in 1889, and into Ireland in 1894. These dates are given to show the order of advance and the recentness of the movement in some parts of Europe. The first German association was formed in 1849 by Frederick William Raiffeisen. Herr Schulze did not get his started until the following year.
Herr Raiffeisen was poorly educated but deeply imbued with religious feelings. He lived among peasants in a sparsely settled and impoverished locality, and his object was to help the lowest classes. The associations which grew up under his guiding hand were mutual societies confined to small farming districts. The thought of profit was discarded and they were managed by the gratuitous services of their members. Herr Schulze was a talented writer and speaker, and when he took up his life work was holding a judicial post in his native town of Delitzsche. His philanthropy, although intense, leaned to the practical side. He believed in paid services and fair returns for money. The associations formed under his leadership were located mainly in towns. They were managed by salaried officers, and membership was dependent upon the purchase of shares on which dividends were allowed. But both kinds were founded upon the fundamental principle of combining persons together and using the credit created by their united guaranty for providing funds for members who might wish to borrow.
In the early days the mutual credit associations were formed simply by articles of agreement in the nature of a partnership contract, and members were jointly and severally liable without limit for all the loans that were made. In course of time, when the Government began to take official recognition of the associations, some of the followers of Schulze favored a limit to this liability. Hence the mark of distinction became clearly defined between "Raiffeisenism" and the "Schulze-Delitzsche" propaganda. The German law, as it now stands, requires mutual banks to have share capital, but allows them to be organized upon the limited or unlimited liability plan. All true Raiffeisen banks, in order to preserve their character, have shares of only a nominal value and devote dividends to educational or charitable purposes. In Germany these local banks are grouped under central banks, which in turn are linked together by two general central banks, and their funds are made to move freely for agriculture throughout the Empire. The centralization of the system has also been inaugurated in France.
Personal credit in agricultural Europe is obtained usually by means of the coöperative credit associations. They are also used by artisans and small tradespeople in the towns and cities. These associations are in fact the only banks which the farmers will patronize for short-time loans in the nations where they abound in the greatest numbers. With their aid poverty and usury have been banished, sterile fields have been made fertile, production has been increased, and agriculture and agricultural science raised to the highest point. Their educational influence is no less marked. They have taught the farmers the uses of credit as well as of cash, given them a commercial instinct and business knowledge, and stimulated them to associated action. They have encouraged thrift and saving, created a feeling of independence and self-reliance, and even elevated their moral tone.
The picture can hardly be overdrawn. Every traveler who visits the places where these little associations exist speaks in glowing phrases of the prosperity and contentment that prevail. They are organized on such simple lines that their management requires only ordinary intelligence. Failures have rarely occurred. In France and other countries they hold a record of having never lost a cent. The working capital and number of members of individual associations are so small as to be insignificant, yet they do one-third of the banking business of Italy; while the combined amount of their operations in Germany equal that of the commercial banks. But the mutual banks, both in town and country, are looked upon with favor in the financial world because they keep millions of dollars of petty sums in circulation which, except for them, would be idle and hoarded. They are, in fact, feeders for the commercial banking system.
In 1909 in Belgium 458 banks, with a membership of 25,762, had outstanding (roughly calculated) $4,000,000 of loans; in France ninety-six regional banks did upward of $25,000,000 of business on a capital of $2,983,646, while the 2,983 local banks, with a membership of 133,382 farmers, had $2,622,241 of capital and a record of over $20,500,000 of operations. There were nearly 6,000 banks in Austria. The membership was over 725,666, and the loans ran over $86,500,000. In Italy 690 banks that furnished reports had a working capital of over $170,091,946. In Germany there is one bank for every 1,600 of the population, and the total business done was over $4,888,000,000. In one Province there is a bank for every 3,000 acres of land; and so on for all other nations that have coöperative credit institutions. The rate of interest charged was one or two points lower than in commercial circles, yet these banks, with a few exceptions, made a fair profit on the turnover of their capital. In some instances it ran as high as 5 per cent and 7 per cent.
With this striking array of figures to show its stability and usefulness, it is remarkable that the farmers of the United States have been so slow to adopt this system of banking for temporary loans on personal security. It has existed in Canada for twenty-two years. In the Province of Quebec there are a number of mutual banks that have loaned hundreds of thousands of dollars. But Massachusetts is the only State in our country that has made an attempt to encourage its introduction. It already has a law allowing the incorporation of credit unions. It was passed in 1909 after a careful study of European legislation, and furnishes an excellent example for the other States. The first concern to start under this law was the Myrick Credit Union at Springfield. In twelve months it had one hundred and five members, a capital of $3,000 and $10,000 of outstanding loans. Interest rates have been low, yet it paid over 6 per cent dividends on its capital. Thirteen new unions were formed in 1911 and have $25,000 of capital. A pamphlet issued by the State bank commissioner gives a comprehensive description of the fundamental principles that a mutual association for personal credit must adhere to. I cannot do better than to quote from it. They are as follows: