Too much emphasis cannot be laid on the fact that these small credit societies are not organized for making loans on real estate. The deposits and funds received by them are withdrawable on short notice. This privilege must be allowed in order to attract the capital needed. But as loans to members yield interest considerably under the ordinary market rate, the only way they have of paying for the use of this capital is by making quick and numerous turnovers with it. In Germany they have taken long-time mortgages, but the practice is strongly denounced by all students who have investigated into the cause of the remarkable success of the Raiffeisen and Schulze-Delitzsche systems as contrary to the theory on which they are founded. Credit is indispensable to every business. It is the means whereby $1 is made to do the work of $50, as the saying goes, but its classifications and limitations cannot be ignored without danger. A loan to acquire something merely for consumption is not tolerated, no matter what may be the security offered. The loan must be strictly for a creative purpose. This is the first cardinal principle, and so rigorously is it adhered to in Europe that the credit societies invite to their circle only those who are producers of wealth.
Another principle is that personal and real credit are inherently and irreconcilably separate and distinct, and each must have specially adapted institutions for carrying on its operations. This is only a reaffirmation of what we have already decided over and over again.
The recognition and observance of these principles have done much to prevent thriftless debt among farmers, and are undoubtedly the reasons why the land credit is so thoroughly organized on the European Continent. A loan on chattel or character security should naturally be for a short time and for temporary purposes, for such security is perishable and subject to loss or change. The long-time loan requires an unchanging and permanent security, and the only thing possessing this quality is mother earth herself. But when capital is once sunk in land it becomes fixed and can never be recovered except from the income created thereby or the amortization sums paid in representation of that income. A debtor should not be called upon to pay back the loan in a lump or in advance of his receipts from the land. To do so leads only to further borrowing, usually on more burdensome terms, when the mortgage expires. On the other hand, a private individual cannot be expected to take his money back in driblets or wait long years for its complete return. So private lending on real estate is a theoretical and also a practical wrong. The proof of this lies in vast numbers of foreclosures and the excessive interest rates of farm mortgages in western United States, where they are largely held by persons. The smallness of the annual payments and the length of an ordinary loan in Europe are shown in the tables of the Crédit Foncier, which have been given already. A glance at them makes it apparent that amortization, the basic principle of a land loan, can be brought into full play only by the aid of large corporations or associations with charters perpetual or lasting a long time.
Mr. Banker: It does not seem to me, under the circumstances, as though we could treat the Mutual Credit Associations or Credit Unions wisely. Indeed, I am of the opinion that legislation by us would interfere with and retard the progress of such associations.
Uncle Sam: Mr. Laboringman has waited patiently to have his say about coöperation.
Mr. Laboringman: Yes, I have been biding my time, for I have something to say that ought to interest all of you, as a possibility at least, and if it is reasonable to do so, I hope that you will include some sympathetic laws by way of encouragement.
England was the birthplace of modern industrialism, as you all know. There, too, was started the great movement of modern coöperation. Small and insignificant was the beginning. In 1844 the Rochdale pioneers put all their little savings into the pot, and they amounted to only $140. With this they started a store. By 1845 they had seventy-four members and $900 of capital, and did $3,500 worth of business, by keeping their little business open only two evenings a week. They were an object of derision and all sorts of jibes.
S.P. Orth describes the situation as follows: Last year the British Government made a careful and complete report on coöperation in England, and found more than three million persons in the membership of the various societies, and over three times that number under the immediate sphere of coöperative influence. That means that one person in every five in the United Kingdom is now interested or influenced by this vast association of producers and consumers. During the past ten years, the increase of membership has been 55 per cent and the trade 75 per cent.
The productive and distributive business alone amounts to $640,000,000. The retail societies have $200,000,000 of capital. "Last year the sales of these retail societies totaled more than $352,000,000, or about $142.50 per member." It is most significant that the societies, in their own mills and factories, produced nearly 50 per cent of these goods themselves; that is, production and distribution are going hand in hand. They began by making boots and butter; now they make cloth, iron and all sorts of things.
The average profits for the last ten years have been nearly 15 per cent and there is now a serious discussion whether the cost of articles to the customer should not be lowered.