Rural credits : land and coöperative

ALBERT H. MANN

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^tate-($nUege of Asttcultute
At (il^omell HmoerBttg

Htbratg

RURAL CREDITS

RURAL CREDITS

LAND AND COOPERATIVE

BY

MYRON T. HERRICK

AMERICAN AMBAB3ADOB TO FBANCE
AND

R. INGALLS

NEW YORK AND LONDON
D. APPLETON AND COMPANY

1914

Copyright, 1914, by
D. APPLETON AND COMPANY

Printed in the United States of America

PREFACE

The purpose of this book is to throw light upon the sub-
ject of rural credits and to lay before the American people
the customs and lavs in operation in other countries, so as
to prepare the way for more enlightened plans for improving
land and agricultural credit facilities in the United States.
It is my hope that the material here collected will be helpful
in creating a credit system or systems adapted to the needs
of the agricultural interests of this country.

The subject ef rural credits has occupied my attention,
more or less, for a considerable number of years, and I have
availed myself of the opportunities of my position as Amer-
ican Ambassador to France to familiarize myself with agri-
cultural conditions and credit systems and institutions in
Europe. Furthermore, my twenty-eight years' connection,
with the Society for Savings in the City of Cleveland, as
treasurer, chairman of the board, and president, has been of
great value to me in the formation of ideas regarding financial
questions, and especially with respect to cooperative credit.
The Society for Savings, with nearly one hundred thousand
depositors, is one of the largest of the mutual savings banks
in the country. It has no capital stock; it is mutual in its
organization and administration, and was founded primarily
for the purpose of encouraging thrift. Indeed, for several
years, I have deemed it a patriotic duty to investigate the
rural-credit systems and institutions of various nations and
to give my fellow-citizens the results of my research.

The project for improving farm-credit facilities and intro-
ducing cooperation credit in the United States is not a new one.
In an article published in the Journal of Social Science in
1869, Henry ViUard, the railroad builder, gave an interesting
account of the Schulze-DeHtzsch banks, and remarked that

vi PEEFACB

"they can safely be recommended for adoption in this coun-
try." In 1893 the Department of Agriculture published a
bulletin prepared by Edward T. Peters on "Cooperative
Credit Associations in Certain European Countries." This
document, which is still the best published by the Government
on these topics, described the systems of cooperative credit in
Germany, Austria-Hungary, Italy, and Eussia. In 1901 An-
drew McFarland Davis prepared for the American Economic
Association, and published in the association's Quarterly, the
history of "Currency and Banking m the Province of Massa-
chusetts-Bay." This work, which should be carefully read
by legislators proposing laws for improving land credit,
explains the causes of the failures of the land banks which
were established iu some of the American colonies iu the first
half of the eighteenth century. The reports of the National
Monetary Commission, appointed ia 1907, eontaiu valuable
information on land-banks and cooperative credit systems of
Europe. All this shows that the problems of rural credits
had engaged the official attention of the Government before
the launching of the recent movement. In fact, since the col-
lapse of the farm mortgage "craze" in the early nineties, the
farmers' interests have been a subject of consideration by all
those who have been studying the question of currency re-
form.

On November 22, 1908, a cooperative savings and loan
society was established at Manchester, New Hampshire, for
French-Canadian lumbermen working during the winter in
the New Hampshire woods. Some of the members were resi-
dents of the agricultxiral districts of Quebec in which Al-
phonse Desjardins' bank was in operation. In 1909, through
the influence of Pierre Jay, bank commissioner, the Massa-
chusetts Legislature enacted a credit-union law, a fact which
did not become widely known until several years later. In
1910 a thesis on "Cooperative Credit Associations of the
Province of Quebec," submitted by Hector Macpherson to
the faculty of the Graduate School of Arts and Literature of
the University of Chicago, first attracted the attention of the
American public to the work of Mr. Desjardins in Quebec.

PREFACE vii

The question was begiiming to be widely discussed in
1910, and during the summer of that year, while on a trip
to Europe, I obtained, through Eobert Skinner, then consul-
general at Hamburg, statistics and particulars regarding the
cooperative land-credit systems of Germany. This informa-
tion I used in a speech delivered at Delaware, Ohio, on Octo-
ber 26, 1910, before Group Five of the Ohio Bankers' Asso-
ciation. After that I began a thorough investigation of the
subject, and became so deeply interested that I brought the
matter by resolution before the American Bankers' Associa-
tion at its annual meeting of 1911 in New Orleans. On No-
vember 24, 1911, the Association instructed its Committee on
Agricultural and Financial Education and Development
(then formed) to investigate the general subject of rural
finance in relation to conditions in the United States. Sev-
eral months earlier, in the same year, the Jewish Agricul-
tural and Industrial Aid Society had begun actually to form
cooperative credit societies for farmers.

President Taft was so much impressed with the impor-
tance of the problem of rural credits that he directed Secre-
tary of State Kjiox to instruct the embassies in Germany and
Italy and the legations ia Belgium and the Netherlands to
make investigations in the matter of land credit. In a letter
addressed to me on March 30, 1912, the Secretary said:

These missions are being instructed simultaneously to send
copies of their reports to the Embassy at Paris, which is re-
quested to undertake the duty of preparing a general report,
with all proper exhibits and documents such as will place the
Department in possession of all data necessary, to the Presi-
dent for the formulation of some practical scheme which may
be worked out to bring the desired benefits to the agricultural
communities in the United States. If there are any other
countries where such arrangements are already in operation,
the Department will, from time to time, be glad to supplement
the present instructions with further instructions.

On April 1, 1912, at its meeting at Nashville, Tenn., the
Southern Commercial Congress, at the suggestion of David

viii PEEFACE

Lubin, American delegate to the International Institute of
Agriculture, held a conference on rural cooperative credit.
On April 17, 1912, Senator Porter J. McCumber, of North
Dakota, presented in the Senate and had published as a public
document an outline of European rural cooperative credit,
compiled by the Institute on February 26, 1912. On June 22
of that year, the EepubUcan Party at its convention at Chi-
cago adopted as one of its planks a resolution indorsing the
movement, prepared according to my suggestions. Similar
resolutions were adopted subsequently by the Democratic and
Progressive parties at their conventions.

On October 11, 1912, the Government at Washington,
through the Department of State, published the "Prelim-
inary Eeport on Land and Agricultural Credit," which I had
compiled at Paris with the assistance of Edwin Chamberlain,
of San Antonio, Texas; Edward N. Breitung, of Marquette,
Michigan, and E. Ingalls, of Atchison, Kansas. In formu-
lating the recommendations in that report, I found extremely
useful the suggestions and information furnished by M. De-
charme, of the French Ministry of Agriculture; Hippolyte
Morel, president of the Credit Foncier of France; Georges
PaUaiQ, governor of the Bank of France; Henry W. Wolff,
the BngHsh authority on cooperative credit; Curtis Guild,
then Ambassador to Eussia; John G. A. Leishman, formerly
Ambassador to Germany; Eichard C. Kerens, formerly Am-
bassador to Austria, and Maurice Francis Egan, formerly
Minister to Denmark. The report was sent to the governors
of the states, accompanied by a personal letter of President
,Taft approving its recommendations and inviting the govern-
ors to a special conference, which was held at the White House
on December 7, 1912.

President Wilson proclaimed his advocacy of the rural-
credits movement in his inaugural address, and on March 4,
1913, an act was passed by Congress for the appointment by
the President of a United States Commission to go to Europe
with the American Commission assembled by the Southern
Commercial Congress for the purpose of making an investiga-
tion and report on agricultural finance, production, distribu-

PEEFACE ix

tion, and rural life in Europe. The commissions sailed on
April 36, 1913. The evidence of the American Commission
was submitted to the Senate on October 30, 1913, and its ob-
servations and a minority report on December 5, 1913. The
reports of the United States Commission were submitted to
ihe Senate on January 29 and March 13, 1914.

As a result of the movement, several states have enacted
laws to improve rural credit facilities, and there are numer-
ous biUs of the same purport pending in Congress and the
state legislatures. It cannot be said that the legislation
enacted or proposed is entirely satisfactory. Indeed, neither
bankers nor farmers, as a class, have given it their unqualified
approval. The trouble seems to lie in an attempt to apply
European principles to American conditions without ade-
quately studying the credit institutions and systems devised
for farmers and landowners in European and the few other
countries where they have been developed.

In preparing this book, I have tried to supply facts and
figures regardtag these institutions and systems. For this
reason it is largely descriptive. The information which it
contains has been drawn from public documents and original
sources, and every effort has been made to have it compre-
hensive and accurate.

Mteon T. Heeeick.
Embassy op the United States op Ameeica,
Pakis, Pbance.

September 1, 1914.

CONTENTS

PAET I. LAND CEEDITl

CHAPTBB PAGE

I. CEEDIT, ITS FOEMS AND USE . . . ,'. . 3

Definition. — Forms of Credit. — ^Agricultural Credit in
the United States. — ^Farmers' Debt, Its Possible Ex-
pansion.— ^Long-term Loans and Short-term Loans. —
Federal Eeserve Act of 1913. — Cooperative Banking
■ System for Farmers. — ^European Models.

n. SPECIAL PRIVILEGE AND STATE AID ... 11

Substitution of Companies for Individual Money
Lenders. — ^Break-up of Feudal System in Europe. —
Special Privileges for Determining Titles. — ^Necessities
of European Peasants. — Two European Classes of Or-
ganizations for Lending Money. — American Need of
Long-term, Eeducible Loans.

m. LONG-TEEM LOANS AND AMOETIZATION , . "^ 17

Definition. — Four Methods of Extiuguishing a Loan.
— ^History of Amortization Plan. — Two Advantages of
Amortizable Loans Repayable by Annuities. — Relation
of Value of Land to Loans. — ^Amortization Impossible
for Ordinary Money Lenders. — Absolute Safety Neces-
sary for Bonds of Amortization Companies. — ^Deben-
tures the Key to the System.

IV. DEBENTURES 24

Land as the Basis for Issue of Paper Money. — ^History
of Experiments in England, Prussia, France, and the
Colonies. — ^Land Good as Such Basis Only if Owned
by Government.— Not Possible as Basis for Bank '
Loans. — Characteristics of Debentures.

xi

xii CONTENTS

CHAPTBB FAGI! )

V. THE ORIGIN OF THE GERMAN LANDSCHAFTS . 34 "^

German InstitutioBs for Credit. — ^Number and Loca-
tion of Landsehafts. — Definition of Landschaft. —
Landsahafts Now Voluntary But First Compulsory. —
Origin in Prussia After Seven Years' War. — Biiring'3
Plan. — ^Arguments for the Scheme. — ^Adoption and
Success.

VI. THE SILESIAN LANDSCHAFT : ITS STEUCTITRE . 45

Organization. — Executive Council. — ^District Boards. —
Standing Committees. — General Assembly. — ^Permanent
Committee. — Circles. — Bank of the Silesian Land-
schaft.— Bureaus of Loans to Non-members.

Vn. THE SILESIAN LANDSCHAFT: ITS OPERATION . 58

Methods of Bank and of Bureaus for Non-members. —
Obligations of Landschaft. — Procedure in Obtaining a
Loan. — ^Forms of Debentures Received: Litera A and
Litera C. — Obligations of Borrowers. — ^Benefits to
Members. — ^Rights of Borrowers. — Liabilities in Case
of Default. — Loans to Non-members. — ^Landschaft
Bank.

Vin. THE SILESIAN LANDSCHAFT: ITS FUNDS AND

DEBENTURES 68

Investment of Interest. — General Fund. — ^Amortization
Fund. — Guaranty Fund. — Bank Fund. — ^Accounts. —
R«ports'. — ^Denominations of Debentures.*-Debenture3
Only in Exchange for Mortgage Contracts. — Rights of
Debenture Holders. — Redemption of Debentures on Re-
payment of Loan. — Debentures as Investments. —
Litera B Debentures. — Condition of Silesian Land-
schaft in 1912.

Et, THE OTHER GERMAN LANDSCHAFTS ... 77

Old Type of Landsehafts in Prussia. — Stat© Aid. —
Variations in Different Provinces. — ^Management,
Members and OfScers. — Credit and Debentures. —
Changes After Napoleonic Wars. — Privilege of RecaU-
iug the Loan. — Reduction of Interest. — The "Con-
version."— Creation of a Sinking Fund. — ^Posen's
Provincial Credit Association. — The New Debentures.
— ^Amortization of Loans by Annuities. — ^Extension of
Landschaft to Common People. — ^Reduction of Mini-
mum for Credit. — Variations Among New Landsehafts.
— Central Landschaft.

CONTENTS xiii

CHAPTBS PAGE

X. GERMAN PUBLIC LAND-CEEDIT INSTITUTIONS 92

Land-credit Institutions Other Than Landschafts. —
Necessity for Their Creation. — Three Classes. — Land-
credit Banks. — Original Purpose to Commute Peudal
Servitudes. — Present Purpose to Supply Cheap Money
on Land Security. — Operation. — ^Land Improvement
Annuity Banks. — ^Purpose to Finance Land-improve-
ment Projects. — Operation. — Settlement Commission. —
Purpose to Create Small Homesteads. — ^History. —
Operation. — State Invalidity and Old-age Insurance
Institutions.

XT. PRIVATE SOURCES OP LAND CREDIT IN GER-
MANY 101

Long-term Reducible Loans Made by Public Credit
Institutions. — Short-term Loans Represented by Sec-
ond Mortgages. — Savings Banks. — ^Their Operation. —
Mortgage Loans. — Private Insurance Institutions. —
Real-estate Loans Not on Farm Lands. — Coopera-
tive Credit Societies. — Land-credit Banks. — History. —
Bonds. — OflScial Supervision. — Operation. — Bavarian
Mortgage and Exchange Bank of Munich. — ^Prussian
Central Land-credit Company. — History and Operation.

XU. FRANCE: THE CREDIT FONCLER . . . .111

Legislatisu. — ^History of Land-credit Movement. —
Creation of the Credit Foncier. — ^Privileges. — Organi-
zation.— Capital Stock. — Purpose. — Two Sources of
Funds. — ^Long-term Loans. — Syndical Associations. —
Long-term Leases. — ^Amount of Loan. — ^Application for
Loan . — The Purge. — Terms and Penalties. — Use of De-
bentures.— Premiums. — Special Privileges.

TTTT. FRANCE: LAND CREDIT FOE AGRICULTURE . 128

Sous-Comptoir des Entrepreneurs de Batiment. — Sub-
sidiary Company to Credit Foncier. — Operations and
Management. — Applications for Credit. — ^Long-term
Credit. — Statistics of Operations. — ^Not the Intended
Aid to Agriculture. — ^Reason in Its Centralization.
— Central Bank for Agricultural Loans. — ^Long-
term Loans to Associations through Credit Agrieole
MutueL — Long-term Loans to Individuals. — Two
Methods of Amortization.

xiv CONTENTS

CHAPTEB FAGS

XIV. ITALY 136

Present Institutions. — History of Land Credit. —
Failures Due to Overlooking Farmers' Interests. —
Istituto Italiano di Credito Fondiario of 1891. —
Banks of Issue. — Present Savings Banks. — Land-
credit Business Kept Separate. — Loan Seeurily. —
Interest. — Debentures. — ^Payments. — Capital Stock of
Istituto Italiano. — Powers of Company. — ^Emphy-
teusis.— ^Agricultural Credit Given by Savings, Com-
mercial and Cooperative Banks, the Monti Frumen-
tarii, and Associations of Land Owners.

XV. SMALL HOLDINGS IN" GREAT BRITAIN AND

IRELAND 148

Act of 1908 Enables Government to Take Private
Land. — Land Leased in Small Holdings. — County
Councils in Charge of Leasing. — ^Procedure. — Forma-
tion of Cooperative Associations. — Land Court of
Scotland. — ^Land Holders and Small Holders. — Work
of Scotch Board of Agriculture. — ^Four Official Bodies
in Ireland. — Large Loans of Board of Works. —
Congested Districts Board in West of Ireland. — ^Iriah
Department of Agriculture and Technical Instruction.
— Credit of State Extended by Estate Commissioners
for Acquiring Real Estate. — ^Progress of Work. —
History of Land-purchase Legislation. — ^Aets Admin-
istered by Board of Agriculture and Fisheries.

XVT. AUSTRIA-HUNGARY, RUSSIA, AND THE BAL-
KAN STATES 161

Provincial Mortgage Institutions of Austria. — Their
Loans. — History of These Institutions. — Land Credit
in Hungary. — ^Hungarian Boden-Kredit Institut. —
Administration. — ^National Land Credit Institute for
Small Holders. — ^National Federation of Hungarian
Land Credit Institutions. — ^Land Credit Institute at
Nagy-Szeben. — Large Russian Projects. — Colonization
of Siberia. — ^Peasants' State Land Bank. — ^Distribu-
tion of Land to Emancipated Serfs. — Operations of
the Bank. — Work of the Land Commissioners. — ^Aid
for Home Colonization in Finland. — ^Rural Banks of
Communes. — ^Mortgage Society of Finland. — Terri-
torial Credit in Livonia, Esthonia, and Courland. —
Government Confiscation of Nobility's Estates in
Roumania. — ^Landschaft System and Rural Bank. —
Bond and Mortgage Institution of Servia.

CONTENTS

XV

CHAPTBB

XVIL

SWITZEELAND, DENMARK, AND SCANDINAVIA

Numerous Swiss Land-credit Institutions. — Unique
Mortgage Banks. — ^Danish Associations Like Gemuux
Landschafts. — Mortgage Associations in Denmark. —
Mortgage Bank of the Kingdom of Denmark. — Home
Colonization Policy. — Landowners' Mortgage Asso-
ciations.— Swedish General Mortgage Bank. — Appro-
priations by Swedish Government. — State Aid in Nor-
way.— ^Work Done through Norwegian Bank for
Laborers' Holdings and DweUings.

PAGB

176

XVIU. LAND CEEDIT OUTSIDE OF EUROPE

. 187

Land-credit Institutions in Egypt. — ^Land-credit Sys-
tem of Japan. — ^Agricultural Bank of the Philippines.
— State Banks of Australia. — Queensland Agricul-
tural Bank. — State Aid for Home Colonization in
New Zealand. — Mexican Land Mortgage Banks and
Promotion Banks. — Three Land-credit Institutions in
Argentine Eepublic. — ^Early and Successful Land
Credit in ChUe. — ^Banco Hipotecario del Uruguay. —
Costa Eiea's State Land-mortgage Bank. — Territorial
Bank of Cuba. — ^Development in Europe and America
of Loans on Life Insurance Policies.

XIX. THE PRINCIPLES OF LAND CEEDIT AND

THEIE APPLICATION 209

Distinguishable Feature of Land-credit Institutions
the Power to Issue Debentures. — These Not Possible
to Usual Money Lenders. — Private Institutions and
Landschafts. — Loans Made to Special Classes. —
Eegulations and Powers. — Organizations of European
Countries Compared. — Security of Loans. — ^UnreeaU-
able Long-term Debenture Necessary for Long-term
Credit. — Situation in United States and Europe. —
Comparison of Silesian Landschaft and Possible Or-
ganization in Kansas. — ^Wisconsin Land Mortgage
Associations Act. — ^Land Bank of the State of New
York. — ^Eural Business of Savings and Loan Associa-
tions.— Ohio. — CoUeetive Saving Different from Co-
operative Credit. — ^Desirability of American Land-
schafts.

xvi CONTENTS

PART II. COOPERATIVE CREDIT

CHAFTBB PA6B

XX. COOPEEATION AND COOPEEATIVE CREDIT . 247

Definition. — Administration. — Objects. — Cooperative
Society versus Partnership and Corporation. — ^His-
tory of Corporations. — Eise of Modem Cooperation.
— English Trade Unions. — ^Beginnings in Germany
and Prance. — Work of Schnlze-Delitzsch for Trades-
people and Workingmen. — ^Eaiffeisen's Activities for
Agriculturists. — Luigi Luzzatti. — ^Advantage of Co-
operation for Farmers. — Two Arrangements in
Europe.

XXT. THE SCHTILZE-DELITZSCH PEOPLE'S BANKS . .-263

Early Life of Sohulze. — ^Founding of Associations for
Workingmen. — ^Political Career. — Later Loan Asso-
ciations.— Spread of Movement. — ^Attitude of Prus-
sian Government. — ^Death and Beputation of Schulze.
— Henry Charles Carey. — Claude-Frederic Bastiat. —
Scotch Banks and "Character" Credit. — ^Plan of
Schulze People's Bank. — Operation and Organization
of a Bank. — Objection to Centralization.

XXn. THE EAIFFEISEN SYSTEM 281

Life and Character of Eaiffeisen. — ^Early Work for
Cooperation. — Change from Charity to Self-help.
— Growth of Societies. — ^Differences from Schulze-
Delitzsch System. — Central Agricultural Land Bank.
— General Federation of the Eural Cooperative So-
cieties.— ^Eeasons for Success of His Principles. —
Agricultural Cooperation and Combination His Con-
tribution. ^'

XXrn. GEEMAN SYSTEMS AT PRESENT . . . .296

Distributive Societies of William Haas. — ^Imperial
Federation of Agricultural Cooperative Societies
and the Raiffeisen General Federation. — ^Unions,
or Local Cooperative Associations. — State Aid. —
Income and Audit of the Unions. — Examples of
Failures Among Societies and Banks. — Cooperative
Banks for Agricultural Systems. — Prussian Central
Cooperative Bank. — Small Credit Societies at Base
of Whole System. — Their Organization, Rules, and
Liabilities.--Statistics.

CONTENTS

xvu

CEAPTIS

XXIV,

PAGE

321

AGEICTILTTJEAL CREDIT IN PEANCE

Early Cooperative Movement in France. — Credit
Agricole Mutuel. — History of Society. — Soei^te du
Credit Agricole. — ^Its Failure Due to Method of
Organization. — Further Attempts. — La'ws of 1867
and 1884. — Associations and Comices. — Syndicats
Professionels. — Syndical Banks and Connection
■with Bank of France. — Organization and Opera-
tion of Banks of the System. — Government Loans.

XXV. ITALY: LUZZATTI AND WOLLEMBOBG . . 346

Lnzzatti and His Cooperative Credit Bank. — ^De-
partures from the Schulze-Delitzsch and Baiffeisen
Systems. — ^Legislation. — Management. — ^Business. —
WoUemborg and Kural Credit Societies. — ^National
Federation of Eural Credit Societies. — Position of
the Church. — Success of the Associations. — Special
Laws for the South. — Government Aid. — Casse
Ademprivili of Sardinia. — Central Banks versus
Local Organizations.

XXVI. THE DtTAL MONAECHT 364

Conditions in Austria. — Early Cooperative Move-
ments.— Schulze-Delitzsch Banks and Baiffeisen
Credit Societies in Austria. — German Federation
of Austrian Agricultural Cooperative Societies. —
State and Provincial Aid. — Conditions in Hungary.
— ^Early Cooperative Movement and Count Karolyi
— ^Hungarian Central Society for Cooperative
Credit, the Centre. — Organization, Duties and Priv-
ileges.— Success and Failures of Hungarian Credit
System. — ^Three Types of Cooperative Organiza-
tion Independent of the Centre.

XXVn. BELGIUM, HOLLAND, LtrXEMBtlBG, DEN-
MARK, SCANDINAVIA, AND SWITZEELAND . 380

Cooperative Credit Early Devised in Belgium. —
Credit Union of Brussels. — ^Farmers Not Benefited.
Comptoir Agricole and the Genieral Pension and
Savings Bank. — The Boerenbond. — Syndicates. —
Village Associations in HoUand. — The Catholic
Church. — Eindhoven Central Bank. — Central Banks
at Utrecht and Aikmaar. — High Degree of Co-
operation in Luxemburg. — State Banks. — Coopera-
tion for Buying and Selling in Denmark.— jGov-
emment Encouragement of Eural Credit Societies.

XVUl

CONTENTS

— Mortgage-bond Companies of Norway. — Early
Cooperative Associations for Sweden. — Baiffeisen
Societies in Switzerland. — Swiss Union of Eaif-
feisen Banks. — Small Banks and Ample Credit. —
Cattle-purchasing Commissions of Thurgan.

XXVm. EUSSIA AND THE BALKA.N STATES .

Activity of Cooperative Societies in Russia. — The
Artel. — ^Early Cooperative Loan and Savings So-
ciety.— ^Moscow Agricultural Association. — Schulze-
Delitzsch Banks. — Credit Societies. — General Board
for Small Credit and the Bank of Russia. — Legis-
lation and Government Aid. — ^Zemstvo Banks. —
Moscow People's Banks. — Conditions in Finland. —
Highly Centralized Cooperation. — Central Coopera-
tive Credit Establishment. — People's Banks in Eou-
mania. — Central Bank. — State Aid. — Servian Banks
of EaifEeisen Type. — Joint-stock Central Bank.
— General Union. — ^Public Granaries. — Farmers '
Banks of Bulgaria. — Central Agricultural Bank. —
Unique Central Cooperative Bank. — Cooperative
Attempts in Turkey and Cyprus. — Cooperation
Among Jewish Colonists in Palestine.

XXIX. SPAIN AND PORTUGAL

395

415

Positos. — Need of Credit. — Operations of Positos.
— ^Recent Credit Societies. — The Leo XIII, the
Bank of Spain and the Mortgage Bank. — Govern-
ment Help for Cooperative Societies. — ^Misericor-
dias and CeUeiros Communs of Portugal. — ^Modern
Agricultural Mutual Credit System. — Agricultural
Credit Board and Bank of Portugal. — Republics
of Andorra and San Marino. — Monaco and Lioh-
tenstein.

XXX. BRITISH INDIA, JAPAN, EGYPT, AND THE

AFRICAN COLONIES 427

Conditions in India. — The Kuttuchuttu and Nidhis.
— ^Work of Nicholson and Wolff. — Cooperative
Credit Ldws of 1904 and 1912. — Development of
Societies. — Statistics. — Early Mutual Aid Societies
in Japan. — Law of 1909. — Central Association of
Cooperative Societies. — Attempts in Egypt. — So-
ciety of Omar Lufty Bey. — Credit System in Al-
geria and Tunis. — Provident Societies. — Thrift So-
cieties of French West Africa. — Credit Societies in
Java, Windhoek.

CONTENTS

THY

CHAFTBB PAGE

XXSJ. GEEAT BRITAIN, IRELAND, CANADA, AND

THE UNITED STATES 439

Iriah Agricultural Organization. — Sir Horace
Plunkett. — ^Doneraile Credit Society. — Progress of
Eural Cooperative Credit Not Satisfactory. — Agri-
cultural Organization Society for England and
Wales. — Organization and Management. — Scottish
Agricultural Organization Society. — Caisse Popu-
laire of Quebec. — ^Legislation of 1906. — Cooperative
Credit in Preneh Canada. — Cooperative Credit
Among Jewish Farmers of the United States. —
General Agitation . of Bural Credit Idea. — Jewish
Bural Cooperative Banks. — Other Cooperative At-
tempts by Jews in North and South America.

yyyrr. the principles of coopeeative ceedit

AND THEIE APPLICATION 456

Spread of Cooperative Credit in Europe and Asia.
— Building and Loan Associations and Savings
Banks in the United States. — Mutual and Co-
operative Insurance. — No Eural Cooperative Credit
System in This Country. — Characteristics of
European System. — Two Classes of Eural Credit
Societies: Limited Liability with Shares and Un-
limited Liability Paying No Dividends. — Simple
and Uniform Legislation Desirable. — ^Function of
Cooperative Systems to Eeceive Deposits and Ac-
cord Credit on Security Other Than Eeal Estate.
— ^Popular Misconceptions as to European Societies.
— Advantages of a Cooperative Credit Society. —
Credit for Members and Collective Purchase and
Sale. — Threefold Structure of European System. —
Procedure in Formation of a Eural Cooperative
Credit Society. — The Development. — Necessity for
New Laws in United States.

INDEX

431

PAET L LAND CREDIT

CHAPTER I

CEEDIT, ITS FOEMS AKD USE

Definition. — ^Fonns of Credit. — Agricultural Credit in the United
States. — Farmers' Debt, Its Possible Expansion. — Long-term
Loans and Short-term Loans. — Federal Eeserve Act of 1913. —
Cooperative Banking System for Farmers. — ^European Models.

In a financial sense, credit is that confidence reposed in
a person, which enables him to obtain from another the tem-
porary use of a thing of value. It may be accorded on the
security of real estate, personal property, or mere character;
and so is classified in three general forms deriving their
names from the kind of security taken.

Credit in any one of these three forms may be either con-
sumptive or productive according to the purpose of its use.
The purchase on time of a luxury or an unnecessary thing, or
the renewal of an old debt on more onerous terms, is called con-
sumptive because such acts decrease the wealth of the debtor.
This form is dangerous. "Credit supports the borrower as
the rope supports the hanged," said Louis XIV in the seven-
teenth century when he saw how the nobles through extrava-
gance and the peasantry through thrrftlessness had fallen
into the clutches of usurers.

Productive credit is that which is employed to stop a lossi
effect an economy, or create something materially valuable.
The savings or gains which result ought eventually to equal
the debt : hence no one need be afraid of this form, provided
the amount and extent be judiciously limited to ability for
prompt repayment. As is popularly said, productive credit
makes its own security and liquidates itself.

Again, credit is either short-term or long-term. Short-
term credit is properly a banking operation. Chattel mort-

3

4 ETJEAL CEEDITS

gages, easily negotiable collateral, and the endorsement of
responsible parties are the securities taken for it. Eeal-estate
mortgages are usually reserved for long-term credit. Only
relatively small numbers of these reach the banks. As a rule,
they are used for the investment of funds whose owners do
not require a quick return of the principal. Finally, credit is
called individual when accorded to persons separately, and col-
lective or cooperative wheii accorded to groups of persons.

The bulk of the world's business is done on credit. Na-
tions, municipalities and public corporations are bonded be-
yond thought of redemption by the present generation. In-
dustrial companies and commercial houses operate in a large
measure on borrowed capital and banks on deposits entrusted
to their care. Business concerns of all kinds are continually
receiving and giving credit. The majority of successful men
started in active life with no capital but their brains. They
established themselves by gaining the confidence of the in-
vesting public, and many utilize their good names as their
chief financial resource throughout their careers.

The land of aU civilized countries is heavily mortgaged.
A score of years ago the mortgage debt in the TTnited States
was 35.5 per cent of the taxable value of the land. In France
it was 20 per cent. In Prussia rural property was mortgaged
Tip to nearly 40 per cent of its value. These are typical in-
stances of a general condition, and the figures of today, if
compiled, would show as large a proportion. In the United
States 28.7 per cent of the farms were mortgaged in 1890 ; in
1910 the proportion had risen to 36.8 per cent.

Through the varioiis methods of credit the possibilities of
the future have been capitalized and drawn upon in every
conceivable manner for the benefit of present enterprise. But
the use of credit vidthin reasonable limits is commendable and
should be encouraged in honest and capable persons who have
more ideas than money of their own. A man who borrows to
,set himself up in business, to buy a farm or increase its
yield, to cheapen the cost of the growing and marketing of
crops, or for any other productive purpose, does exactly what
he should do, because the transaction enables him to take

CREDIT, ITS FOEMS AND USE 5

advantage of his opportunities and give full play to his tal-
ents, and puts him in the way of doing a possible good to
himself and family, and of becoming a useful member of
society by adding to the nation's wealth.

The machinery for credit in the United States is defective
and inadequate from the point of view of agriculture. There
is plenty of money, it is true, for well-to-do farmers who are
able to meet all requirements imposed by the lender, but there
are no means whatever for granting long-time loans, no
arrangements, except in a few local and special cases, for pro-
moting the movement of the people back to the land, no out-
side sources for short-time credit, nor any system whereby
agriculture may have first use, as it shoidd, of the wealth it
creates for financing itself. About the only facility of which
farmers avail themselves at the banks is the straight loan on
promissory note. They depend too much on the merchant
to carry them over from harvest to harvest, and on this indi-
rect credit, always expensive, of instalment purchases and
running accounts they are paying excessive interest in all
localities remote from financial centers, and their unfruc-
tuous debt is increasing with no prospects of immediate
reduction.

The farmers' debt in 1910, as estimated by the United
States Department of Agriculture, was $250,000,000 on store
accounts, $390,000,000 on cotton liens, $450,000,000 on other
liens, $417,000,000 miscellaneous, $700,000,000 on chattel
mortgage, and $2,793,000i,000 on real-estate mortgage, or a
total of $5,000,000,000. The Department of Agriculture esti-
mated in 1913 that the farmers' debt bears an average rate
of interest of 7.75 per cent, with extremes of 5.80 per cent in
New Hampshire and 11.58 per cent in Oklahoma. Both these
estimates are admittedly conservative and xmdoubtedly fall
below the truth as regards liens, unsecured claims and interest
rates. Other experts have found instances where interest was
charged at the rate of 24 per cent per annum in New England
and 40 per cent to small planters in the cotton states. The
fees for renewals invariably run from two to five per cent.
The incidental costs of real-estate mortgages raise the rate

6 ETJEAL CEEDITS

a point or so above the written rate. Exorbitant nsury is
often concealed in running accounts, yet over one-half of the
farmers are indebted to merchants and implement dealers in
this thriftless form of credit. Taking these facts into con-
sideration, the correct figures would probably exceed $6,000,-
000,000 for the debt and 8.5 per cent for the average interest
rate.

Although stupendous this debt does not necessarily indi-
cate an unhealthy condition. Most of it lies in the newer
sections of the country and in states where agriculture is most
flourishing, and it may reasonably be inferred that it was con-
tracted mainly for productive purposes. But the figures have
grown rapidly within the last 20 years and show that the debt
is increasing at an accelerating rate and that farmers are
paying a higher rate of interest than is justified by the secur-
ity which they can offer. This total debt will become due
within the next five years. Kot even the real-estate mort-
gages will run beyond that period. But all will not be repaid.
That would be impossible. A large part will be renewed with
commissions and additional expenses, and wUl remain as an
accumulating burden upon the borrowers.

New debts will be piled upon this old burden because the
need of credit will expand with the growth of the country.
In 1910 the farms of the United States comprised 878,798,325
acres. Less than one-half of this area, equal in extent to
about 12 states of the size of Ohio, is improved, and produces
only a portion of its possible yield. Thousands of farms lie
abandoned in the East, millions of acres are still untouched
by the plow in the unappropriated public lands, and vast
areas could be made arable by irrigation in the West, or by
drainage and reclamation along the coasts and iu the valleys
of the large rivers. Since not one-fourth of the land is under
cultivation and its production is far below the possibilities,
it may be truthfully said that the surface of the United States
has only been scratched.

But the work of replenishing impoverished soils, opening
up new fields, and stimulating agriculture in all its branches
cannot be long deferred, because the present rate of increase

CEEDIT, ITS rOEMS AND USB 7

in population is greater than the rate of increase in the means
of subsistence, and this youngest Eonong the nations of the
earth is iu danger of being unable to feed and clothe its people
in spite of matchless natural resources. The farmers' debt
may be expected to augment at a more rapid progression than
in the past, but no one can foretell the size it will attain be-
fore it becomes stationary or begins to decrease.

The enomlous funds which agriculture will continue to
require are of two kinds. The first is the fixed capital to be
sunk permanently or for a long period iu the acquisition and
improvement of the land and ia the purchase of equipment;
the second is the circulating capital to be used for short
periods in growing, harvesting, and marketing the crops. If
correct principles were followed, the borrowed fixed capital
would always be represented by the real-estate mortgages, and
the repayment gradually made out of the annual returns from
the soil. The mortgage would then be as near an unchanging
security as it is possible to make it, while a prudential limit
would be set against excessive borrowing. Although this ar-
rangement would be slow, it would be exceedingly safe, and
it would also leave all the other means of credit for the cir-
culating capital, which can never be obtained in sufficient
quantity except upon securities of quick and easy converti-
bility. No mortgage, strictly speaking, is a real-estate loan
unless it be intended to be redeemed out of the land, since
otherwise its ultimate recovery depends upon a personal or
other kind of guaranty.

Inasmuch as the existing system fails to satisfy aU the
credit needs of agriculture, the question arises whether the
desired reforms should be worked out from within, or brought
about by starting anew. Six-sevenths of the credit now ac-
corded comes from local sources. The remaining one-seventh is
represented by the real-estate mortgages held by life-insurance
companies, savings banks, and individual customers of a few
well-known brokers. These lenders usually do not take securi-
ties exceeding the length of five years. Judging from facts,
in Europe they never wiU take them. Long-term loans can
be granted only in connection with the sale of debentures.

8 ETJEAL CREDITS

The farm-mortgage debenture was never given a fair trial in
America.- Even its name has fallen into disrepute, and it
cannot be restored to grace or widely used for drawing money
from the investing public until regulations are prescribed for
its issue and rules for appraising property are standardized
throughout the country. Hence, new legislation and a change
of business methods are necessary in order to put real-estate
credit on a proper basis.

As to short-term loans for circulating capital, it must be
borne in mind that the chief and proper use of the sums
borrowed by farmers is for production, for the creation of
somethiQg that did not exist before. Agriculture, when con-
sidered from year to year and over extended areas, is ia its
returns the surest of all operations. JSTevertheless, there are
elements of risk in each individual case until the product is
ready for the market; and because of this risk agricultural
credit lacks in a marked degree the safety ordinarily required
in banking. A commercial bank's special business is to facili-
tate the exchange of things of definitely ascertained value
already in existence. Hence, practically all the service that
banks of this character can render agriculture is to effect the
transfer of raw material after it has been created. They
cannot grant credit on the potentiality of next season's crop
any more than they can take in security the uncaught fish of
the sea or the ore yet to be extracted from the mine.

Furthermore, the shortest period needed for agricidture
is too long for the banks, and so the 90-day paper of the mer-
chant gets the preference over the six-month or one-year
paper of the farmer. As a result, the major portion of the
farmers' credit is not bankable under the present system, and
only a comparatively small amount of their paper reaches the
outside world. Consequently, when they wish to realize upon
their credit to its fullest extent, the farmers must pay a pre-
mium for the risk incurred, besides the highest interest
charged ia their immediate vicinity. A new system to be
added to the old is necessary to rectify this trouble also, in
spite of the powers recently granted to national banks by the
Federal Eeserve Act of 1913.

CREDIT, ITS FORMS AND USE 9

This act provides that any national banking association
not situated in a central reserve city may make loans secured
by improved and imencumbered farm land, situated within its
federal reserve district, but no such loan shall be made for
a longer time than five years nor for an amount exceeding 50
per cent of the actual value of the property offered as security.
Such a bank may make such loans in an aggregate sum equal
to 35 per cent of its capital and surplus or to one-third of its
time deposits. Reserve banks may rediscount notes, drafts
and bOls of exchange issued or drawn for agricultural pur-
poses or based on livestock, provided that the maturity does
not exceed six months or the total does not exceed in amount
the percentage of its capital to be ascertained and fixed by
the Federal Reserve Board.

These provisions impose no obligation. Experience alone
will determine the effect thereof, but it is probable that the
federal reserve banks will proceed along customary lines and
keep every possible dollar of their capital, deposits and sur-
plus in quickly maturing and easily convertible assets.

Agricultural wealth and production in the United States
are greater than in any other country. The figures are stu-
pendous. In 1910 farm property was valued at $40,991,449,-
090, of which $28,475,674,169 was in land. If this capital
were mobilized the credit needs of farmers could be supplied
for all time to come. The annual returns were $8,417,000,-
000. This is more than suflScient to finance a banking system
for the exclusive use of the farmers. Mobilization can be
accomplished, however, only through institutions capable of
lengthening the period of loans, allowing repayment by
amortization, and able to make heavy and constant sales of
debentures issued against the mortgages taken. As regards
short-term credit, the best banking system ever devised for
enabling farmers to utilize their own funds and revenues for
their own purposes is a cooperative system.

The object of the movement which has been set on foot
to improve farm credit facilities is the introduction of these
principles and practices. Europe furnishes the best models
to be studied. But this does not mean that all European

10 EUEAL CKEDITS

countries have established perfect and completely adequate
systems for farmers and landowners. The case is quite other-
wise. Germany is the only country in which the ideal has been
approached, und much remains to be done there. All the
other agricultural nations, however, have made considerable
progress. Hence, a study of the work which has been done
and of the results obtained in Europe will assist the solution
of the problems arising in the reorganization of land and
rural credit ia the United States.

CHAPTBE II

SPECIAIi PRIVILEGE AND STATE AID

Substitution of Companies for Individual Money Lenders. — ^Break-up
of Feudal System in Europe. — Special Privileges for Determin-
ing Titles. — ^Necessities of European Peasants. — Two European
Classes of Organizations for Lending Money. — ^American Need
of Long-term, Beducible Loans.

The organization of land credit means the substitution of
specifically designed bodies in place of iadividuals as money
lenders. These bodies cannot operate with safety, convenience
and profit unless they have infallible rules for proving titles
and determining the value of land, and quick and cheap
methods of legal procedure for recovering loans. Nor can
they do much good without safeguards for investors and re-
strictions against thriftless borrowing. At the inception of
land-credit institutions on the continent of Europe, special
privileges were granted for their encouragement and protec-
tion. All land-credit institutions created before 1860 were
endowed with extraordinary rights in respect to administra-
tive and judicial matters or accorded fiscal or financial favors
and exemptions ; and the tendency of legislation today is still
towards governmental subsidy and control where the bor-
rowers are exclusively farmers or small holders.

In tracing the origin of this intervention of the state, the
troubles arising out of the breaking up of the feudal system
must not be overlooked. This system prevailed throughout
Europe from the eighth century down to modem times. It
remained in Russia until 1861; its last vestiges were not
stamped out in Germany until 1851. It was based in the
begirming entirely on militarism. The land was allotted to
the nobility in immense tracts on condition of furnishing sup-

11

12 EURAL CREDITS

plies of troops or money to the king for carrying on war.
Each nobleman usually divided aU his estate not needed for
the manor into three parts. One part was leased to knights
in return for military service, another to civilians in return
for farm labor and produce, and the remainder was left as
commons for all. In addition, numerous small plots were
occupied by persons who were obliged to act as menials or to
hold themselves in readiness to do various kinds of unpaid
work. The knights and civilians sublet their fiefs in the
same way. The rights and duties under the system were
hereditary, passing from father to son. No one could transfer
or evade them, or change his residence without consent of
his superior. The farming and laboring classes were serfs,
or slaves boTind to the soil, with no political rights whatever
and very few civil rights which their masters could not dis-
regard with impunity.

Under feudalism all the land was owned in theory by the
Crown. Hence, when kings realized that this antiquated sys-
tem, which had outgrown its usefulness, interfered with their
own powers and blocked the progress of their people, their
advisers found plenty of arguments to justify their course in
breaking it up. On the other hand, a sense of justice made
them feel responsible for the consequences of the change and
urged them to strive to adjust the old to the new order of
things. Feudalism, however, was not abolished by one stroke
of the pen, nor was each step taken in the same way. The
march of events was often attended by periods of violence and
aggression when vested rights were utterly ignored, and
many statutes, with long intervals between them, were en-
acted in every state before the complete eradication of the
system. Generally the high and discretionary powers were
taken first from the nobles. Next, freedom was given to the
serfs, and later on the privilege to own and sell property.
Finally, executive and legislative acts were promulgated re-
garding the land itself. In some states the nobility was arbi-
trarily despoiled of a portion or all of their holdings; in
others, compensation was provided for the confiscation by
allowing the hereditary occupants to acquire the fee only by

SPECIAL PEIVILEGE AND STATE AID 13

conmniting the servitudes, tithes, dues and corvee into per-
petual rents or annuities for definite periods.

The laws were often conflicting, obscure and defective, for
they dealt with the evolution of a new and untried social
condition wherein the rights of men were to rise above the
rights of property, and citizenship was to be detached from
the ownership of land. A tangle of court decisions added to
the confusion. It was not until long after real estate was
capable of being held by plebeians and made freely alienable
and mortgageable by simple agreement that the title could
be transferred without danger or trouble. This was finally
brought about by requiring the instruments to be filed and
recorded in public registration oflSces in order to be valid
against third parties. But in some European countries even
at present certain estates cannot be assigned or encumbered,
while hidden claims are likely to appear to defeat the title
of an ordinary purchaser in spite of every precaution. The
ease and safety with which real estate may be disposed of
within a few hours in most of the American states was
possible nowhere in Europe until a comparatively recent
date.

Special privileges for determining titles, however, have
not been bestowed by all European nations. Germany and
France are almost alone in this respect, and the privileges
were granted there perhaps because the effort to organize
land credit began before the idea of enforcing registration of
titles and of reforming mortgage laws by general legislation
was worked out. Nor, except in a few instances, have special
methods been prescribed for appraising property. 'Jhe estima-
tion of values has been left usually to private discretion, and
the borrower and lender have been safeguarded by Hmiting the
amount of the loan by rules fixed by general law. Special
privilege and state aid to facilitate the raising of money, how-
ever, have been a common practice. Many governments as-
sisted and even created institutions whose purpose was to
compensate dispossessed lords or supply them with capital to
hire labor in place of the liberated serfs, or to furnish these
f reedmen with the means to purchase farms ; and this plan is

14 EUEAL CEEDITS

still being followed to encourage young men to go back to
the land or to remain upon it.

But wherever this intervention occurs it is motivated by
the old feudal notion which led kings to believe that the land
and its occupants belonged to them and should be subject to
their particular care. As the rights and duties dropped away
from the lords, they passed over to the kings and finally
lodged in constitutional governments. Feudalism was fre-
quently replaced by paternalism. England, Sweden, Norway,
Germany and some of the flourishing small states did not
develop along this Une, but all the other large agricultural
nations took this bent, and treated the agricultural classes
as dependent wards, if they gave them any friendly considera-
tion at aU.

Literature teems with stories of the ignorance, poverty
and degradation of the continental European peasants up to
a half -century ago. Masses of them are still so poor that they
do most of their work by hand, carry their produce to market
on their backs or in carts drawn by themselves or their wives,
and are forced to use every miserable little economy to keep
body and soul together. To call an American farmer a
peasant would be to insult him, although the equivalents of
the word in foreign languages convey no offensive meaning.
This shows what agricultural conditions in Europe are as
viewed by American eyes. The majority of peasants are land-
less or own plots too small to be mortgaged and have no chance
to obtain more on their own standing alone. Hence, they are
able to get real-estate credit only by cooperation or from in-
stitutions assisted or privileged by the state.

The feudal system did not gain foothold on American
soil, so the United States has never had a complicated variety
of tenures and gradation of ranks, the removal of which called
for severe remedies. The principles of equality which pre-
sided at the nation's birth have been constantly manifested by
avoiding special and using general laws wherever it has been
possible to do so. Special legislation, either for individuals or
classes, would now be revolutionary and also would deaden
the spirit of those who should rely upon it. The American

SPECIAL PEIVILEGE AND STATE AID 15

farmers are better men than the European peasantry. Fur-
thermore they are the most independent and self-reliant part
of the country's population. It does not seem likely that
they wiU demand privileges and special favors devised for
conditions which have no parallel in this coimtry, and which
would do them in the long run more harm than good.

The two classes of bodies substituted for individuals as
money lenders in Europe have as prime object either the bene-
fit of borrowers or the profit of stockholders and investors.
The first class has been the more favored by state aid and
special privilege. It includes the landschafts, similar asso-
ciations of borrowers, public land banks, banks operating with
funds or on the guaranty of the state, besides governmental
institutions or bureaus handling funds appropriated for some
specific purpose relating to land. The second class comprises
joint-stock mortgage companies, banks with land-credit de-
partments, and concerns which take mortgages simply for
their own investment. Some of these also have been specially
privileged and aided by the state.

The provisions in the laws and organic acts under which
these numerous institutions were created require detailed
description to be understood; many of them, however, would
serve no useful purpose in the United States, siace their place
is amply filled already. The American trust companies, sav-
ings banks and other banks chartered by the states, and life-
insurance companies surpass the corresponding European in-
stitutions in extending real-estate credit to farmers, while
the methods employed for reclaiming and settling the arid
regions iu the West, show a capacity for solving problems
peculiar to locality equal at least to that of the land-improve-
ment and colonization projects of any European government.
From the Ordinance of 1787 which opened up the Northwest
Territory, declared by Daniel Webster to be as great as the
Constitution itself, down to the Federal Eeclamation Act and
the drainage laws of some of the states, American government
has displayed an originality and effectiveness of design in the
use of public resources, power and credit for individual wel-
fare which eliminate the necessity of foreign models.

16 EURAL CREDITS

State aid as well as special privilege is such a predomi-
nating feature in the larger and more active credit institu-
tions of some of the paternalistic nations of Europe that their
results are artificial and do not afford a criterion by vrhich
to judge the actual credit value of land — a poiut to be borne
in mind in examiniug their systems of organization. The
interest rate on a mortgage made from free or cheap money
advanced by the state, or raised by the sale of bonds guaran-
teed by the state or issued by an institution connected with
the state, reflects ultimately the public standing and credit
of that state, and naturally is often low. The chief if not the
only lessons to be learned by a study of European land-credit
systems are the wonderful benefit to farmers of unrecallable
long-term reducible loans, and the ease and abundance in
which money may be obtained for them by the issue of de-
bentures or mortgage-bonds secured either by the solidarity of
^oups of landowners, or by the assets of a company officially
supervised and properly managed.

CHAPTEE III

LONG-TEEM LOANS AND AMOETIZATION

Definition. — Four Methods of Extinguishing a Loan. — ^History of
Amortization Plan. — Two Advantages of Amortizable Loans Ee-
payable by Annuities. — ^Relation of Value of Land to Loans. —
Amortization Impossible for Ordinary Money-lenders. — Absolute
Safety Necessary for Bonds of Amortization Companies. — De-
bentures the Key to the System.

A LONG TEEM foT real-estate credit in Europe is any
period of from ten to seventy-five or more years. A mort-
gage-bond is a promissory note of the maker, secured by desig-
nated mortgages held in trust. A debenture is secured, not by
designated mortgages, but only by a floating charge against
the assets of the maker. It may be a promissory note and
mature at a certain date, but when used for long-term opera-
tions, it is generally made in the naked form of a certified
acknowledgment of indebtedness, having no fixed time for
maturity of the principal, or else calculated to run for the
length of the loan against which it is issued, and withdraw-
able by lot or at the will of the maker alone; until so re-
called it does not entitle the holder to any right except the
receipt of interest.

There are four methods besides payment in full of extiu-
guishing a reducible or amortizable loan. The first is by
equal instalments. Under this method the borrower obli-
gates himself to pay a specified portion of the principal to-
gether with the interest annually, semi-annually or quarterly.
For example, for a loan of $4,000 payable within 20 years,
he may pay 40 semi-annual instalments of $100 each, plus
of course the interest due on remaining principal ; or he may
make 15 semi-annual payments of $50 each, followed by 10

17

18 ETJEAL CEEDITS

of $100 eachj and finally by 15 of $150 each, thus reserving
the larger instalments for later years when the interest
charges become smaller.

The second method is that employed by the German land-
sehafts. Here the borrower obligates himself to pay the
interest on the full original amount of his loan, and, in addi-
tion, one-half of one per cent or more per annum as long as
it runs. All of this extra payment not needed for expenses
is put into a sinking fund and carefully invested to redeem the
debentures given to him for his mortgage. Since the accumu-
lations to his credit depend upon savings and profits made by
the landschaft, there is no way of foretelling when the debt
wiU be cancelled.

The third is the method of the Austrian and German
savings banks. Here also the borrower pays interest on
the full amount of his loan, plus one-half of one per cent or
more per annum as long as it runs. The excess is credited to
him as on a deposit account drawing interest. When this
account and the loan account balance one another his debt is
cancelled. The rate paid by the bank is always lower than
that paid by the borrower and is subject to frequent changes ;
hence, as in the landschafts, the date of the extinction of
the debt cannot be fixed in advance.

The fourth is the French method generally called true
amortization. Here the borrower executes a contract, secured
by mortgage, to pay annuities to the company in consideration
of the sum loaned. The annuity which must be paid to
amortize this sum is determined by the length of the credit
and the agreed rate of interest; it remains level during the
entire period of the loan and is usually paid in semi-annual
instalments. When a payment is made, the company deducts
therefrom the interest due itself and applies the remainder to
reduce the principal of the loan. Hence as time progresses
the deductions for interest grow smaller and smaller and the
portions available for the principal correspondingly larger
until the debt is completely extinguished. For example, on
a $1,000 mortgage loan for 30 years at 4.30 per cent per an-
num the semi-annual annuity is $29.82218. In the second

LONG-TERM LOANS AND AMORTIZATION 19

half of the fifth year $19.74399 of this annuity is used for
interest and $10.07819 for the reduction of the principal. In
the fifteenth year the larger portion, $15.42233, is for the
first time set aside for the principal, and thereafter this por-
tion rapidly increases in size. In the twentieth year it be-
comes $19.07803 ; in the twenty-fifth year $23.60029, and in
the thirtieth or last year all except $0.62765 of the annuity
is applied on the principal, and nothing remains to be paid.

It is commonly stated that the repayment of mortgage
loans by amortization was devised by a bank in Stockholm in
1754, but the germ of the idea is found in practices which
preceded that date by many years. Reference has been made
already to the commuting of the rights of masters against
serfs to annual dues at the end of feudalism. There were
other reasons for creating such encumbrances. Contracts for
perpetual or long rents were entered into as a means of evad-
ing the law and effecting the transfers of lands which could
not be legally alienated. These contracts were given also, in
satisfaction of debts or for the recovery of loans, to the Church
and devout Christians whose sensitive consciences would not
allow them to act in the open as money lenders because of
their belief that all interest was sinful usury and forbidden
by the Bible. Hence, the groundwork for the establishment of
amortization in Europe was well laid; its adoption and devel-
opment, nevertheless, were exceedingly slow.

From Sweden the idea passed over to England and thence
back to the Continent. Erederick the Great seems to have
had an early knowledge of it, for he said at a meeting of the
landowners of Brandenburg on January 18, 1776: "I wiU
gladly let you have 3,400,000 thalers ($2,427,600) at four per
cent. This wiU give you a fond d'amortissement." George III,
who was the common sovereign of Great Britain and Hanover,
had a clear understanding of the principles of amortization.
The charter which he granted to a credit association at Cella
for the nobles of Liineburg, provided that the loans should
be repayable by annuities of not more than five per cent, out
of which one and seven-tenths per cent for the first five years
and one-eighth of one per cent thereafter should be placed in

20 KUEAL CEEDITS

the sinking fund. Two per cent out of the annuities of new
members could be so used for the first five years. If the
association had to issue debentures bearing more than three
per cent the higher rate coxdd be obtained only by "prolonging
the amortization period" of the borrowers, a phrase which
shows unmistakably an intention to apply correct principles.
The first actual use of these principles on the Continent, how-
ever, was by the credit association founded for the Grand
Duchy of Posen, June 28, 1821. The debentures of this
concern were subject to an amortization of 41 years, and the
borrowing members in consequence paid one per cent for re-
demption in addition to the four per cent on their mortgages
and one-fourth of one per cent for expenses. All the old
German landschafts evolved their methods and put them in
general practice in 1839 or thereafter, and Prance began upon
her method in 1852.

Two general advantages inhere in amortizable loans of the
fourth kind, repayable by annuities. The accumulation of
the fractional payments builds up a sinking fund which makes
any debentures issued against the mortgages more secure as
time progresses, and assures their final redemption. The
same process likewise enables the borrower to utilize his small
savings for the reduction of his debt, and practically to adjust
its size and length and the amount of his annual dues to the
capacity of the land and himself for repayment. The latter
advantage was the aim of the oldest institutions. The nine-
teenth century dawned in Europe upon a land overwhelmed
with debt, which continued to increase. In France, in 1852,
interest and taxes were absorbing two-fifths of the revenue
of the soil, and France was in no worse plight than her neigh-
bors. Farmers and landowners were not seeking new loans,
for they had stretched their credit to the limit. Creditors and
claimants had placed them on the verge of bankruptcy.
What they wanted was some way to convert the existing in-
debtedness into obligations with more equitable and tolerable
terms. The nature of this necessity led directly to the long-
term loan, amortization and the debenture. The making of
safe and convenient securities for investors was a secondary

LONG-TERM LOANS AND AMORTIZATION 31

matter which received attention later on. The main objects
of the European governments in the organization of real-
estate credit until after the middle of the century was to
relieve debtors, to pass their burden on to future generations
if need be, and have it paid off gradually by the slow returns
of the soil.

Land owned for use by the proprietor is worth all its net
returns ; held for speetdation or for some reason of sentiment
or fancy, it may be estimated by ether standards at a far
greater price ; but considered merely as security for a loan, it
can be valued only by a portion of the returns, or what re-
mains after paying tazes, making repairs and allowing the
farmer enough to live on. If the farmer's share be increased
so as to afford him a fair compensation, the remaiuder would
be proportionately smaller and practically would correspond
with the rent. Now the rent in old, thickly settled commimi-
ties is no more than three per cent of the selling price of
land. Hence, political economists like Adam Smith and Jean
Sismondi contended that capital sunk in the purchase of real
estate can never be recovered, because its returns are sufficient
to pay only the interest at the lowest rates. This theory of
course coiild be true in practice only for a loan which equals
the full selling price of the mortgaged land or exhausts all
its credit value. A smaller loan may be made at a high in-
terest rate and with quick maturity since it has all the returns
and the security of a safe margin to fall back upon.

These opinions nevertheless carried great weight and left
their stamp on the early legislation. The annual sum which
the German landschafts required a borrower to pay into the
sinking fund averaged only a fraction of one per cent of the
principal of the loan. This provision is still in force, and in
consequence the members of the landschafts are mostly per-
sons who wish large loans and give mortgages which cover
their entire properties. The maximum for Ueensed land-credit
companies in France was put originally at two per cent, but
eventually it was changed by an amendment which forbids
the borrower to obligate himself to pay a larger annuity than
the revenues of the mortgaged property.

23 EUEAL CEBDITS

The French restriction proved to be better than the Ger-
man because, while protecting the borrower from the tempta-
tion of entering into a contract to pay back a loan faster than
he can make it or its equivalent out of the soil, it permitted
him to utilize the entire credit value of his holdings either
for a large long-term loan or for a smaller short-term loan
with higher interest and dues in case of an urgent necessity.
This freedom of action resulted in the use of various combi-
nations of interest rates and loan periods, and gave full play
for the first time to all the possibilities of amortization,
"without which," says Eoyer, "every real-estate credit system
is an incomplete and fragile scaffold, deceiving the public and
endangering, the welfare of any nation relying on it."

But this amortization, so needful and beneficial for farm-
ers, is practically an impossible operation for ordinary money
lenders. No individuals and but few companies can afford to
tie up their capital and take it back in driblets as it is re-
funded bit by bit out of the earnings or savings from the soil
during a long series of years. The only type of concern which
can accommodate agriculture in this way on a large scale is
one authorized and able to issue and sell debentures and
thereby to recover immediately the money so sunk regardless
of the length of the loans. Furthermore, the concern must
be large and so organized and managed that the annuities
wiU flow in suflScient volume to form fairly large amounts
for profitable investment, and that the sinking fund thus
accumulated be guarded as securely as the reserves of a life-
insurance company, for the retirement of outstanding deben-
tures and the liquidation of its borrowers' loans. These an-
nuities, less the interest charges, should be placed at each
payment with their earnings to the credit of the borrower's
account in the sinking fund, so that compound interest may
run in his favor against the company or against bondholders
in the companjr's favor. In this way the borrower never has
actually to repay the full amount of his loan, or else he may
get the lowest interest rate on it.

Long-term operations may endure beyond the lives of the
contracting parties, and consequently investors will not buy

LONG-TEEM LOANS AND AMORTIZATION 33

the bonds of an amortization house nor landowners enter into
annuity contracts with it unless they be assured of the abso-
lute safety of the transactions. There must be complete con-
fidence and strength and stability approaching permanence
for such an institution to continue in business extensively.
For this reason, besides being specially privileged in some
countries, amortization houses are subject to more rigorous
regulations and restrictions than ordinary money lenders,
with the view of safeguarding the rights even of generations
to come and also of keeping the door of the money market
continually open to them. Most of these regulations relate to
the debenture, the key to the success of the system, which, as
drawn in Europe, has never been used in the United States
in real-estate credit.

CHAPTER IV

DEBENTURES

Land as the Basis for Issue of Paper Money. — ^History of Experi-
ments in England, Prussia, France, and the Colonies. — ^Land
Good as Such Basis Only if Owned by Government. — ^Not Pos-
sible as Basis for Bank Loans. — Characteristics of Deben-
tures.

The form and use of the debenture grew out of the old
ideas of making the land a basis for the issue of paper money.
Some of these ideas left lasting impress on history. In the
middle of the seventeenth century, when commerce in Eng-
land was awakening and inland bills and promissory notes
came into general use (1645), the need was felt for a bank
to act as a clearing house for the nation. There were banks
on the Contiaent which issued notes against coin deposited in
their vaults. English financiers, however, suggested that
goods and merchandise also be adopted as a basis for currency.
There soon followed the argument that land, being stable, im-
perishable, and not capable of being stolen or removed, would
be even better than coin or goods and merchandise for this
purpose, and an active propaganda was started for the estab-
lishment of land banks which should emit notes. The discus-
sion ended m the founding of the Bank of England in 1694.
This institution, however, did not meet with the immediate
success promised, and the agitation for land credit was re-
vived and conducted with such vigor that Parliament incor-
porated the Land Bank in 1695 and the National Land Bank
in 1696. The latter institution did not materialize because of
the inability of its promoters to raise capital. The cause of
the disappearance of the Land Bank is not known, but during
its short existence it issued bills and notes which were given

24

DEBENTrRES 35

and received as currency, and which were preferred to specie
by many. Their form was as follows :

This bill pursuant to the settlement of the Land Bank en-
rolled in Chanceiy, Anno Dom. 1695, doth charge one hundred
pound value of register secured upon lands, rents and estates,
entered in Libro A Wo. 1, and the stock of moneys and funds
of insurance annexed to said bank, with the payment of one
hundred pounds and interest, etc. (or without interest) to John
Doe, etc.

By Order of the Trustee and Managers.

In 1705 John Law, subsequently famed for the "Missis-
sippi Bubble," raised the question in Scotland, and in a plan
submitted to Parliament for supplying the deficiency in gold
and silver money, proposed that the Government appoint
commissioners to appraise lands and issue notes in three
modes : first, as an ordinary loan not exceeding two-thirds of
the value of the land given in security : second, to give notes
up to the full value of the land, and to enter into possession
thereof under a bond to redeed: and third, to buy the land
and give notes for its full value.

Law's plan, though strongly supported by the court party,
was finally rejected. Then this remarkable man, after a
checkered career as a duellist, gambler and adventurer, turned
up in Paris in 1715 with about a half -million dollars of mys-
teriously gotten gains, revamped his Scotch scheme, gained
the ear of the Duke of Orleans, and offered to found a bank
of issue under the control of the state, with notes secured
by land and the royal revenues. The Government declined
at first to identify itself with the project, but in 1716 granted
him a charter for the General Bank of Law and Company
(his brother). In 1718 the Government bought the majority
of the stock of this concern, renamed it the Eoyal Bank, with
Law as president, and within a few years entrusted it or its
allies vdth the receipt of the taxes, the farming of the reve-
nues from tobacco and other sources, and the management of
the mint, gave it a trading monopoly in the South Seas, al-
lowed it to absorb the Senegal Company, the Company of the

26 EUEAL CEEDITS

Indies, the Chiaa and India Company, and also, what Law
had held constantly in mind, authorized it to organize the
Company of the West to which was granted the immense prov-
ince of Louisiaaa with all its fabulous stores of precious
metals, Elysian fields and infinite opportunities for making
easy fortunes. But the downfall of this greatest of plungers
in the realm of finance was even more rapid than his rise.
In 1720 the bubble burst. The conduct of the affairs of a
nearly bankrupt nation had kept him too busy in the heyday
of his power to develop his pet land-credit schemes, and the
Budden and overwhelming panic destroyed his hopes forever.
His desperate attempt to shore up his tottering system by
ordering the Company of the West to receive the bank's notes
at par in stock sales disclosed the weakness of both and
brought down the whole in ruin.

The next stage in the development of land credit
was its organization in Prussia in 1769, and this is the
most important of all, because in the establishment of
the Prussian system land debentures were first devised: and
yet Frederick the Great, in the edict legalizing their use, de-
clared that they should, "at sales of estates, payments of
loans, etc., be taken and circulated as coin in the same way
as the parchment mortgage instruments in the dukedoms of
Schweidnitz and Janer." This allusion must be explained.
In Schweidnitz and Janer real property could not be encum-
bered by a mere contract between the parties. Judicial pro-
ceedings had to be brought and the consent of the court
obtained, and after that the transaction was concluded, not
by two papers, a promissory note and a mortgage, as in the
IJnited States, but by one ofBcial document signed by the
parties, the judge and clerk, and duly recorded. Documents
like this very naturally were used as money in the absence of
other currency, although they did not bear the fiat of the
Government.

Paper money based solely on land was issued during the
French Eevolution. In 1789 coin had vanished from France
and the people were unable to pay taxes. The bloody and
lawless Government was in dire distress. To save itself from

DEBENTUEES 27

bankruptcy it confiscated the lands of the Crown, the Church,
and, later on, of fugitive emigrants. The intention was to
dispose of these lands for public purposes. The sales, how-
ever, were too slow to satisfy fiscal needs, and the Government
decided to issue notes in the nature of mortgage-bonds against
the national domains as a substitute for metallic currency.
The first notes, called "assignats," bore five per cent interest,
were redeemable within five years, and were given the prefer-
ence over other kinds of money for the purchase of these
lands. It was presumed that a holder who did not wish to
buy lands could get the face value of the notes from some
one who did and that thus the whole issue would be gradually
retired.

In 1790 the assignats were made legal tender and enor-
mous quantities of them were put in circulation without just
ratio to the land. The land was repeatedly reappraised and
overestimated. Hence the assignats underwent rapid depre-
ciation. Perhaps if Mirabeau's advice had been followed and
the issue confined to one-haU the value of the land, they
would not have suffered the usual fate of inconvertible money.
But nine billions of dollars of them were emitted, and even
the penalty of death provided for all creditors who refused
to take them could not for long stave off the disastrous end.
In 1793 the Government ceased to issue assignats and tried
to refund them by a new form of currency called "mandats."
The difference between the two forms was that the mandats
enabled the holder to take immediate possession of public
lands, whereas the assignats could be offered only in lieu of
cash for the purchase price. But this expedient did very little
good, and the Government had to resort at last to repudia-
tion, and ia 1797 declared aU this paper money outstanding
to be null and void.

America also established bank credits upon land security.
In fact, cooperative land credit was conceived and used in
New England 39 years before it appeared in Europe, while
the land banks of some of the colonies antedated similar insti-
tutions in continental Europe by more than a century and
actually practiced what had been attempted previously in

38 ETJEAL CEEDITS

England without success. As early as 1686 a plan for a bank
to issue bills and give credit on real estate, goods and mer-
chandise was approved by the Governor and council of the
province of Massachusetts Bay, with the recommendation
that such biUs "be esteemed as current money in all receipts
and payments," even for His Majesty's revenues. This plan
fell through in 1688, but the contention that land was better
than specie as security for bills was persisted in and spread
far and wide.

Pennsylvania was the first colony to take a definite step.
In 1722 trade had come to a standstill owing to the lack of
an adequate medium of exchange. Four or five rich importers
had bought up and engrossed the staples of food and wear.
They sold them back at high prices, and thus got hold of all
the hard money, which they loaned out at eight per cent and
placed most of the tradespeople in their debt. Many failures
and general distress resulted from this oppression, to meet
which the Government founded the Public Loan OflSce man-
aged by four official commissioners, to which was given power
to emit bills.

These bills were drawn without interest in small denomi-
nations, the largest being $100, and they were issued only to
borrowers, who had to give a promissory note with bond for
judgment, repayable in 12 annual payments at five per cent
and secured by mortgage on land worth double the amount of
the loan. No borrower could obtain less than $100 or more
than $1,000 of these bills. The Office was inspected by a com-
mittee of the legislative asseinbly, and accounts were settled
every six months. "It is inconceivable," says history, "what
prodigious good effect immediately ensued on the affairs of
the province. Commerce revived with England, Scotland and
Ireland. The poor middling people, who had lands or houses
to pledge, borrowed from the Loan Office, and paid off their
usurious creditors, and the few rich men had to build ships
and launch in trade again." Having accomplished its object
and broken up the money trust, the Office went out of busi-
ness after its biUs were all redeemed.

In 1730 or 1732, 61 influential landowners of the colony

DEBENTUEES 29

of Connectieut obtained from the assembly a charter for the
New London Society United for Trade and Commerce. They
paid for stock subscribed by giving their promissory notes
due in 13 years at five per cent secured by mortgages on their
lands. The Society was authorized to emit bills without
interest against these secured notes, which it agreed to accept
as money in all payments to it. In other words, the Society
operated solely with credit capital and the only borrowers
were its stockholders, who had control of the management.
This was cooperative land credit pure and simple, and gives
to Connecticut the honor, which is usually accorded to Ger-
many, of being the birthplace thereof.

The biLLs of this Connecticut association were phrased in
the form of the public paper issued by the colony. They
became popular immediately and were freely used as money
by the people. But this "swift currency of the New London
Society bills through so many hands," as Governor Talcott
records, aroused suspicion as to the object of this novel and
unfamiliar device. The next year he caused the assembly
to decree the dissolution of the Society for arrogating govern-
mental rights and to order the bills to be recalled. The
notes and. mortgages were then assigned ia trust to the
Governor and he proceeded to wind up the concern whose
affairs contiuued to occupy the attention of the assembly imtil
1749. No question was raised, however, as to the soundness
of these bUls.

The most memorable of these colonial projects for utilizing
land as security for public or private bills was the Land Bank
or Manufactory Scheme launched ia Massachusetts Bay
Province in 1740. The share capital of this association was
$750,000, of which no individual member was allowed to hold
less than $500 or more than $10,000. Subscriptions were not
payable immediately in cash. Each subscriber agreed to pay
five on the hundred of the principal and three per cent use-
money annually until the whole amount was paid, and to
give a mortgage on an estate in land to secure these payments,
which could be made in produce grown or manufactured in
the province. The association planned to issue 30-year bills

30 ETJEAL CEEDITS

of small denominations without interest up to the full amount
of this share capital. These were redeemable only in produce,
but the association and the subscribers, so long as they held
shares, were obligated to receive them for all payments and
in trade and business when tendered by anybody. AU mem-
bers were jointly and severally liable, were the main borrow-
ers, and had votes in proportion to their subscriptions; hence
in its general outlines the association was similar to its co-
operative prototype in Connecticut.

The directors of this extraordinary financial experiment
were among the most prominent citizens of Boston. Judges
and legislators were connected with it. Adroit methods of
promotion had worked the people up to such a point of fatu-
ity that the majority believed that the means had finally
been found for creating the medium of exchange so much
needed for relieving the misfortune and poverty of the coun-
try. Over a thousand persons subscribed for shares and a
number of towns agreed to accept the bills of the Bank for
taxes.

It must be remembered that in those days the principles
of paper tooney were not clearly understood. The sober-
minded citizens, however, realized the dangers which lurked
in the Bank and, backed by the provincial governor, they
proceeded to suppress it. This was done by having the British
Parliament apply to the American colonies the Bubble Act
which had been passed in 1720 to stop the craze for specula-
tion fomented in England by John Law's mad schemes.
Armed with this law, promulgated in 1741, the opponents
of the Land Bank forced it into liquidation. Near-riots
broke out, severe measures were used, and almost 30 years
elapsed before litigation regarding its affairs disappeared from
the courts. The foreclosures, attachments and arrests made
by the royal Government upon the property and persons of
the numerous members of this unfortimate concern to settle
its debts, engendered, according to Samuel Adams, as much
ill will as the Stamp Act.

The historic incidents described above show the various
ways in which land has been used as a basis for money and

DEBENTUKES 31

bank credits, public or private, vagaries of the old dream of
mobilizing the soil. As a basis for inconvertible money, land
can serve no purpose whatever except as a measure for the out-
put, and since the percentage of value to be taken for the
measure may be adopted or changed at will, the security of
such money really depends upon the honesty and standing
of the government and not at all upon the land. There is no
denying, however, that land may be used to a certain extent
for convertible money, provided the government is the owner.
The French assignats were good imtil the revolutionists per-
fidiously violated their faith. Similar instruments, the scrips
formerly issued in large numbers by the federal and state
governments in the United States, which entitled the scripee
or his assigns to allotments in the public domain, were always
in popular demand. In fact, as the available area for home-
steads decreased the value of these certificates, although given
as bounty or for insignificant money equivalent, rose to near
the selling price of land, and they were speedily bought up by
settlers and all redeemed. Divided into coupons and made
legal tender, they would have been accepted as a safe and
fluid currency, but it would not have had any stability, be-
cause its volume would have been subject to diminution as the
land was sold off.

If the government owned no land and should issue money
against mortgages on lands of others, it would simply be
playing the role of a lender, with all the attendant costs and
risks in establishing its security. It would have to lend to
all landowners equally to avoid class legislation or special
privilege, and this would mean that individual loans would
have to be small if the issue were to be kept within reason-
able bounds. Hence the government would find this Mnd of
money exceedingly expensive. Moreover, it could not prose-
cute defaults to foreclosure and eviction in the event of panics,
bad crops or hard times without being held up to public exe-
cration. As a consequence this money, founded on something
which could not be realized upon or removed, would always
remain in the country and drive out the good money.

These objections, which bar land as a basis for money, may

32 RUKAL CREDITS

be urged also against its nse as security for bills of banks,
whether controlled by private parties or by the government.
A bank with one-fourth of its capital and surplus in real-
estate mortgages and one-third of its time deposits in loans
of the length required by agricidture would be likely to be the
first to go to the wall in a panic, unless its borrowers were
mostly depositors and stockholders of the bank, as in the
case of a cooperative credit society. A deposit bank which
should immobilize its assets to such an extent would in fact
completely denature itself and become an investment com-
pany. If banks must depart from the established usages of
trade and commerce, they should be empowered to issue deben-
tures or long-term bonds and permitted to make their mort-
gage loans only out of the funds raised by these instruments.
Deposits are entrusted to the banks upon the understandiag
that they may be withdrawn at will or at a time agreed upon.
The custodians should not be allowed to abuse this trust by
sinking them in loans which the average depositor would not
care personally to make. Deposits are circulating capital and
should be preserved as such.

The organization of land credit depends upon the careful
observance of this distinction. Landowners cannot be
financed by deposits. Their needs caU for investment cap-
ital, and this can be obtained with safety and profit only by
institutions authorized to issue debentures. The form and
effect of the debenture in Europe, as already indicated, are an
evolution proceeding from the unrealized dream of mobilizing
land values for paper money. Tentative projects proved the
folly of this hazy dream, and led Europe to reject also that
other mistaken notion that land may be used as a security for
bank credits. Out of original error the true principles sprang
to light and evolved the debenture, which has come as near to
mobilizing land values as that object can be attained.

The only characteristics of money which have been re-
tained in this instrument of land credit are that it may be
made payable to bearer, is in small denominations, without
fixed time for maturity, and is exempted from taxes. The
circulation of the debenture has been facilitated by simplify-

DEBENTUEES 33

ing the formalities for transfer and by making it a legal in-
vestment for almost all kinds of funds, while its redemption
has been assured by statutory limitations which prevent ex-
cessive issue. The status and regulation of the debenture,
however, vary in different countries.

CHAPTER V

THE ORIGIN OF THE GERMAN LANDSCHAFTS

German Institutions for Credit. — ^Number and Location of Land-
schafts. — Definition of Landschaft. — Landsehafts Now Voluntary
But First Compulsory. — Origin in Prussia After Seven Tears'
War. — Biiring's Plan. — ^Arguments for the Scheme. — ^Adoption
and Success.

The German Empire comprises four kingdoms, §ix grand
duchies, five duchies, seven principalities, three free towns,
and one territory. The division of government between the
Empire and its constituent parts is somewhat like that be-
tween the nation and states in the United States. Besides the
imperial legislation on the subject, many special and general
laws relating to real-estate credit are in force in these 26
states. As a consequence there is a great variety of German
institutions especially organized for according such credit,
many of which were chartered long ago, in the days of inde-
pendent sovereignties. These institutions may be classified
generally as landsehafts, public land-credit banks, land-im-
provement associations, governmental institutions for assist-
ing small holders to acquire homesteads, and joint-stock mort-
gage companies.

The landschaft is the origiual type of the land-credit in-
stitution, and it is considered the best because it can lend
money at the lowest interest rates, be most lenient to debtors
in defaxJt, and issue the safest securities for investors. There
are 23 institutions of this kind. Of the larger German states,
only Baden, Hesse, Oldenburg and Alsace-Lorraine are
witiiout any. Eighteen are in Prussia and cover all that
kingdom except the Ehine Province, Hesse-Nassau, the Mu-
nicipal District of Berlin, and an enclave in Wiirttemberg

34

ORIGIN OF THE GERMAN LANDSCHAFTS 35

known as Hohenzollern Land; eight of the Prussian land-
schafts have combiaed to form the Central Landschaft.
Saxony has two landschafts, and Bavaria, Wiirttemberg,
Mecklenburg-Schwerin, and Brunswick each have one. In
Wiirttemberg the landschaft accepts mortgages on both rural
and urban properties, but the landschafts ia the other states
lend only on lands outside of the cities.

Each landschaft was created by a special provincial act
which gave it the right in perpetuity to operate vrithia its
prescribed area and vested it with such official powers as to
make it a branch of the government. There is no general
law relating to landschafts except the Prussian law of 1897
which extended the landschaft privileges to all which should
be founded before 1900. No persons took advantage of this
law nor has any landschaft been organized in recent time for
farmers outside of Bavaria, so it may be assumed that there
is no need or inducement for an increase in their number.
Those which date back to the eighteenth century are known
as the old landschafts, the others as the new landschafts;
and one consisting entirely of noble estates is called a "ritter-
schaft."

4 landschaft is an association of landowners, supervised
and controlled by the government, and empowered to issue
debentures on the joint and several liability of the mem-
bers and to give them to members only, in exchange, how-
ever, for their several obligations, secured by mortgages, to
make stipulated payments into its treasury at stated inter-
vals; it is further empowered to receive, invest and finally
apply these payments for the redemption 'of the debentures
as they mature. Several concerns with shares, chartered under
the cooperative law, are sometimes ranked with the land-
schafts, but the real landschafts have no capital stock, nor
do they possess any cooperative feature except the mutual
liability of members and the meager right allowed to them to
vote for lists of officers to be presented to the Crown for
approval.

Although the first of the landschafts was founded in
1769, the existence of these institutions was scarcely known

36 EUEAL CEEDITS

outside of Prussia as late as 1845. Charles Edward Eoyer,
Commissioner of the French Ministry of Agriculture, in
a report rendered in the latter year said: "It would be dif-
ficult for me to express the astonishment which I felt at
Stettiu and Breslau, where the landschaft had existed for
more than three-quarters of a century and placed in circula-
tion over 30 millions of dollars of debentures, upon learning
that public officials and wealthy citizens were unable to give
me any information about the association, which they hardly
knew by name. The bankers especially spoke lightly of the
association, and this struck me as strange at first, although it
was entirely natural among men accustomed as they to con-
sider the importance of financial operations by the rapidity
of the flow of money and the big profits resultiug therefrom
for them."

The landschafts are still little considered in the finan-
cial world, since they have small paid staffs of employees,
avoid all speculative ventures, and make no effort whatever
to increase their business, while their debentures circulate
only within their respective provinces and represent mainly
the loans which early members obtained with the intention of
leaving them as a permanent burden upon their estates.

All the new landschafts are voluntary associations, but
the oldest was compulsory, the nobility within its jurisdic-
tion having been obliged by royal decree to become members.
This arbitrary proceeding was taken as a measure of public
necessity, to bring financial relief to sufferers from the devas-
tation of the Seven Years' War, and it saved 400 of the best
families of Silesia from ruin, as related by Frederick the
Great in one of his letters. The victories of this conqueror
had been dearly bought. He made of Prussia a mighty
nation, but burdensome taxes and the ravages of contending
armies had brought trade and commerce to a standstill and
pressed with particular severity upon agriculture and land-
owners. A fragment of a manuscript of Professor Dieterici,
then director of the statistical bureau of the Ministry of
Agriculture at Berlin, portrays the damage done to private
property by this war, and says that de Struensee, the Prime

ORIGIN OF THE GEEMAK LANDSCHAFTS 37

Minister, attributed the land-credit troubles after the peace
of 1763 to the following causes :

Many states had been entirely ruined, notably those in
■which the armies had been encamped for a long time. The soil
remained, it is true, but aU which was necessary for giving it
value had disappeared. Buildings were burned. The scattered
livestock had died of hunger. Farm implements were rusted
and rotten, and the fields lay im.cultivated. The value of the
land had diminished 50 or 60 per cent, and where the owner
owed a big part of the price at which he purchased it before
the war, he was utterly unable to pay the interest on his debt,
to say nothing of the principal at maturity. Niunerous de-
faults were made, and the resulting foreclosures reduced land
values stiU further and excited distrust in the money lenders as
to the worth of the security, who thereupon demanded repay-
ment of all sums advanced and brought about a crisis.

During the war landowners had obtained high prices for
farm produce, a.nd had paid in Saxon tiers not only taxes but
even interest dues in this inferior money. This sufficed for a
while as a compensation for the cattle and supplies which the
armies had foraged off their lands. But after the peace every-
thing suddenly changed. The price of produce fell. Taxes and
interest were required to be paid in specie of the standard of
1784, and the cost of labor continued to rise. Moreover the
landowners, who had been tempted into extravagance by the
high prices they received during the war, were unable to change
their habits, and their ruin became inevitable.

The first remedy which Frederick the Great employed
with the hope of relieving the indebted landowners was to
ignore the rights of the creditors and stay by royal decree
the payment of interest for three years. The stay law, sub-
sequently extended for another period, utterly destroyed the
credit of all who resorted to it and left them at the mercy
of usurers. The few loans which were granted drew 10
per cent interest with two or three per cent of commissions.
Dr. Fassenbender adds that lenders also, having reserved the
right to demand payment on a few months' notice, availed
themselves of this privilege for exacting new commissions
repeatedly.

38 EUEAL CEBDITS

Finding that his remedy only intensified the miseries and
dangers of the situation, Frederick the Great decided to recon-
sider a plan submitted to him by an obscure merchant named
Biiriag, who evidently had studied John Law's old schemes.
This plan was based on the idea of creating a public inter-
mediary between lenders and borrowers, and using the com-
bined estates of landowners as a collective security for de-
bentures. A translation follows :

The true capital of a country consists in cash and land.
The value of the latter is ten times greater than the former,
and if only a small portion of it were mobilized, it would abim-
dantly suffice for the credit needs of the kingdom. This could
be accomplished by establishing a land union bank (land-
schaftscasse) with power to make a valuation of all the estates
of the nobles when requested and to lend them one-half or two-
thirds thereof on mortgage so that they may pay oS pressing
creditors. The loans should be made in the following manner:

First, provincial mortgage-bonds or debentures shall be is-
sued in denominations of $360 and $720 payable to bearer with
four per cent interest, guaranteed by the land-credit bank and
secured by the estates mortgaged to it. The bank shall give
debentures to each landowner up to one-half or two-thirds of
his estate as may be determined by the management.

Second, landowners shall pay four and a half or five per cent
semi-annually to the bank on their loans, but the bank shall
pay only four per cent once a year to the holders of the deben-
tures.

Third, the difference of one-half or one per cent shall be left
at the disposal of the bank for meeting expenses and salaries.
Any remainder, together with the income from the use of the
semi-annual payments, shall be set aside as a separate provision
against accidents, such as death of livestock and damages by
hail, fire, droughts, or war, because in these cases the nobility
might not be able to make their interest pajrments out of their
damaged estates. In such an event the estate should be re-
valued and the damage made good out of this fund.

Advances may be made up to only one-half or two-thirds of
the estimated damages, according to the plan used for the origi-
nal loan. Eules for estimating damages shall be fixed by the
Eing's Cabinet. Since Your Majesty has graciously promised

OEIGIN OF THE GEEMAN LANDSCHAFTS 39

a capital for tliis enterprise, the interest thereon might be used
for this fund.

If anyone fail to make his semi-annual payments promptly,
his estate should be offered for sale at once. I do not favor
receiverships, for they are an eternal curse.

Fourth, matters relating to the estates of crown tenants
shall be decided by three nearest borrowers of the same class,
or better still a special arrangement for loans should be pro-
vided for them.

Fifth, care should be taken that no defaults occur, and that
the principal and interest of the debentures be never altered.

Sixth, inasmuch as this great and important work would
require some cash to begin with, it might be well for your
Majesty to set aside a fund for this purpose. Otherwise the
Banco [a commercial bank then in existence] might get enough
money at three per cent to buy up these four per cent debentures
and draw the interest out of the country and ruin it. Further-
more, the Banco should be required to sell debentures with
accrued interest immediately upon their coming into its hands.

Seventh, there is no need to have the name of the debtor or
a description of his estate appear in the debentures. They
should be made payable to bearer. Thus they would have easy
negotiability and also be as good currency as banknotes, for
there is no reason to suppose that many of them would ever be
returned for redemption. In a short time they might be quoted
at a premium.

This great project could be started at once without many
conferences or discussions, because it would be voluntary for
everyone to avail himself of its assistance. No guaranty of the
province will be required. The guaranty of the bank and the
mortgaged estates would be sufficient, if legal remedies were
provided to assure prompt recovery.

Eighth, severe penalties should be imposed on any person
who should take any of these debentures out of the country.
No stranger should be permitted to purchase them either di-
rectly or through agents residing here, and thus draw the inter-
est out of the country. In case of a violation of the law the
entire principal should be forfeited, one half going to the in-
former and the other half to the bank.

If -a, stranger should consimae the interest here, no mon^
would leave the country and the matter would adjust itself.
This would be better than borrowing the capital abroad at the

40 EUEAL CEEDITS

lowest rates, for in this latter event, the entire amount bor-
rowed would go out in the way of interest, and the coimtiy
would stiU have to pay the principal.

In Holland, for instance, the provincial bonds yield only two
and one-haM per cent and are not payable to bearer as these
debentures would be. How much more valuable these deben-
tures would be with their four per cent interest and easy nego-
tiability which would enable them to be exchanged for cash
any day! Would not the Hollanders absorb this paper with-
out our noticing it and finally ruin us unless precaution be
taken?

Ninth, the business and privilege of the post office in trans-
ferring money from place to place would perhaps be seriously
interfered with if debentures equal to the amoxmt of the landed
debt and accrued interest be issued and become current as cash
in trade. So one-fourth of one per cent tax should be charged
upon transfers of these debentures.

If it should ever become necessary to withdraw these deben-
tures from circulation, the retirement could be accomplished
easily and gradually by forbidding other lenders to charge more
than four per cent interest on mortgage.

The interest rate on money would naturally fall as soon
as an abundance of currency had been obtained through the
issue of these debentures. The landowners would then be able
to obtain new loans at four per cent or less. They need not
wait for action by the bank. They could take the debentures
over to the bank, which would at once cancel their mortgages.
Thus the debentures would disappear from circulation owing
to the fact that the interest rates of the bank were one-half of
one per cent or one per cent more than those of other lenders.

Methods should be devised for retiring these debentures as
well as arranging for a plenty of them, according to the safe
rule which must be followed invariably in matters concerning
the state. Otherwise they would lose value as currency; and
when the end had come, as the proverb says, "the purse is
worth as much as the money." It wouJd not be difi5cxdt at all
to cause property to rise over 50 per cent in value by increasing
the volume of currency; but the state must observe correct
financial principles, and see that money, real estate and goods
be kept at fair proportions, else the best arrangement would fall
to pieces and one thing after another be ruined.

The objection may be raised. How is this plan to help those

OEIGIJSr OF THE GEEMAN LANDSCHAFTS 41

landowners -who already owe debts exceeding three-fourths or
more of the value of their estates? The answer is that what
has been said above clearly shows: (o) that even they would
profit from this plan because, the supply of money being
increased, they would not be pressed so much by their creditors ;
and (h) even if their properties should be put up at forced
sale, they would be sold at 20 to 30 per cent over the present
price, because every purchaser would know that he could im-
mediately get back an amount of cash equal to one-half or two-
thirds of their appraised value.

At present, however, properties are often sold at less than
their appraised value, and hardly one-half of the mortgage
creditors recover all their loans. Although there perhaps would
be no surplus at the sales under this plan, yet this ruinous loss
could never occur. There is no way to help a debtor who falls
in debt over and over again, except by making him a present
of money.

The majority of the nobles may now be regarded as ruined,
in view of the present condition of their estates. The number
of livestock is insufficient, causing a lack of manure and conse-
quently poorer crops. How are they to pay their interest?
Their estates are deteriorating daily and decreasing in value.
If you go back to the serfs who depend on their helpless land-
lords in case of crop failures or death of cattle, where will you
find the dues which must be rendered to the king? The loss
suffered by landlord and tenant on account of the deteriorated
fields falls likewise upon the king and the entire country.

It would also be desirable for Tour Majesty to allow the
benefits of this plan to be extended to the owners of lands im-
proved by buildings in the principal cities of the kingdom.
This could be easily arranged, and would stop hundreds of law-
suits and save great numbers of persons from the misfortune
of losing all that they possess.

Properly arranged and carefully managed, this plan might
be of great advantage for the entire country, and give the state
an inner strength surpassing aU expectations.

The arguments advanced by Biiring in support of his
plan are well understood in these days, but they were new
to his time. He called attention to the fact that money
lenders would not make loans unless they were able to ex-

42 EUEAL CEEDITS

amine the property and investigate the character of the
owner; and that inasmuch as they were likely to make mis-
takes in judging values and the capacity for repayment, they
invariably compensated themselves for the risk incurred by
chargiug the borrower with an insurance premium in the
form of high interest rates. Money lenders, moreover, al-
though satisfied with the soundness of mortgages, were often
deterred from making such investments on account of the
immobilization of their capital resulting therefrom.

In Prussia, it was true, lenders had the right of exact-
ing repayment upon a few months' notice, but even this
short delay frequently deprived them of a chance for some
good bargain. Besides they were never sure that the bor-
rower would be able to repay at maturity, and they dreaded
the heavy expenses of foreclosure in the event of a default.
The lenders of course might sell their claims instead of call-
ing them in. This, however, was an empty right, because
purchasers could not be found at will. But an establish-
ment which occupies itself habitually in seeking and accept-
ing disposable capital, in Biiriug's opinion, would not encoun-
ter these difficulties, since it would be in a far better posi-
tion to attract money lenders than an isolated landowner who
does not maintain constant relations with the investing public
So he proposed the foundation of a great central land-credit
bank with powers to issue debentures against mortgages on
the estates of all persons in the kingdom, and he thought
that these would circulate as ready money by reason of
their soundness and popularity, if official supervision were
provided.

Biiring's plan led directly to the organization of the land-
sehafts, but it was materially changed before being adopted.
Frederick the Great discarded the idea of a central institu-
tion for that of a separate landschaft for each province, ex-
cluded urban and plebeian properties as securities, and con-
fined the benefits entirely to the rural estates of the nobility.
He also required the names and estates of the borrowers
to be mentioned in the debentures, but in other respects he
went the full length of Biiring's suggestions in trying to

OEIGIN OP THE GEEMAN LANDSCHAFTS 43

make these instruments of land credit pass current as paper
money.

The first landsehaft was the one created for Silesia by a
cabiaet order signed by Frederick the Great on August 29,
1769. The order blanketed aU the rural lands of the nobility
in that province with a perpetual lien in favor of the asso-
ciation as a secvirity for any debentures it might issue, de-
creed these noble farmers to be members thereof, and enjoined
them to assemble and complete its organization. This was
done on July 15, 1770, and the King granted the landsehaft
$216,000, later increased to $432,000, and also subjected the
crown lands to this collective liability.

The association appraised all the lands within its juris-
diction, took mortgages from the members who wished credit
and gave them debentures in exchange. But it had no arrange-
ment for amortization. It did not even collect the interest
on the mortgages. Payments were made directly by the
borrowers to the lenders as before. The holders did not
have any recourse against the association in the event of
default in payments on the debentures until they had ex-
hausted their legal remedies against the persons and estates
named therein. Then if the association were called upon,
it could bring its special summary proceedings against the
delinquent, and if the judgment were not satisfied by him it
could levy assessments on the other members for the de-
ficiency.

It wiU be seen that the landsehaft as first devised was
not intended to alter the direct relation between the borrower
and the lender. It acted simply as an impartial intermediary
between them without any responsibility or duty on its part
except to see that the mortgages and debentures were properly
executed and to enforce the collective liability of the mem-
bers on the defaults. Being founded and financed by the
government and connected with it, the association was in
truth its official organ for refunding the enormous mass of
debts which encumbered the land as a result of the war and
public disorders and converting them into obligations with
reasonable terms. It accomplished this purpose so well that

44 EUEAL CREDITS

the interest rate was immediately reduced to five per cent and
soon afterwards to four per cent, and this success induced
the nobles in five other Prussian provinces to form associa-
tions along the same lines.

Nevertheless these old associations imderwent changes in
the course of time. The objects and methods which they and
the new associations subsequently formed now pursue differ
considerably from those of the early days. Some of the first
debentures are still in circulation but debentures of similar
form are issued no more. Originally the word "landschaft"
signified a stretch of land with boimdaries politically or other-
wise defined, and only by derivation has it come to mean
the institution operating thereupon.

CHAPTER VI

THE SILESIAN LAKDSCHAFT: ITS STETJCTUEE

Organization. — Executive Coimeil. — ^District BoaTds. — Standing Com-
mittees.— General Assembly. — ^Permanent Committee. — Circles. —
Bank of the SUesian Landschaft. — ^Bureaus of Loans to Non-
members.

Although called an association, the landschaft of Silesia
is in fact a great public land-credit system covering the entire
province, which is divided for this purpose into nine dis-
tricts, each subdivided into two or more circles. Each district
has an association of its own and all the associations are
united imder one general management; hence the organi-
zation is decentralized. Supervision is exercised by the Min-
ister of Agriculture through a royal commissioner. The
headquarters of the landschaft is in the capital city of Breslau,
where it ovms and operates a large banking corporation.
Branches of this bank have been opened in seven of the
nine districts and it does busiaess with all comers. The
districts maintain bureaus for extending credit on agricul-
tural lands of non-members within their borders.

Silesia is about one-third the size of Ohio, but has nearly
one million more inhabitants. Its area is 15,569 square
miles and in 1910 it had a population of 5,225,963. The
landschaft system included originally only the farm and
forest lands which belonged in 1770 to the nobility and the
Crown. These, whether mortgaged or not, are charged per-
petually by Frederick the Great's order with a coDeetive
liability for the debentures. The lands of the Church were
brought within its scope a few years later. In 1807 an edict
of the Prussian King permitting plebeians to acquire estates
of nobles practically eliminated the requisite of rank. In

45

4:6 EUEAL CEEDITS

1815 another royal edict decreed municipalities to be eligible
to membership upon contributing certain sums to the reserves
of the landsehaf t. Hence the system now embraces all rural
Silesia, with the forests, mines and fisheries therein. The
land of a member must be worth at least $7,500, else he
cannot become an official or a borrower. Credit, however, may
be accorded by the district bureaus to a non-member on a
plot yielding a revenue of only $24 a year. The bank dis-
counts notes given by resident borrowing farmers for sums
as small as $73.

Eegisters are kept at headquarters and in all the districts
for recording the title, description, alterations and transfers
of a member's property, together with the debentures issued
against it and the mortgage, given to secure them. These
registers are legal and indisputable proof of their contents.
If the value of an estate fall below the minimum, the owner
is notified in writing, and if he offers no' valid defense, he
forfeits his membership, this fact is noted in the' registers, and
his loan is recalled. An owner is admitted to membership
and his lands to registration by resolution of the permanent
committee preceded by a vote of the board of the district in
which the land is situated. The only reason which a person
now has for joining is, of course, to obtain a loan, and he
ceases to be a member after this has beeji paid.

All officers are selected from among members who are
borrowers up to specified amounts, who possess irreproach-
able characters and known business abilities. They must
resign if their estates are sold in foreclosure or sequestered
for defaults. No one holding an office of profit or trust under
the government can be an official of the landschaft unless
by consent of his superiors and of the executive council of
the landschaft. This rule was adopted to bar politics. Nor
can anyone, clerk or official, hold two offices at the same
time, or be connected with any other land-mortgage institu-
tion. The term of an elective office is six years. Officials are
bonded and sworn and enjoined to observe absolute secrecy
respecting the affairs of the association. They are responsible
in personal damages for the strict performance of their

SILESIAN LANDSCHAPT: ITS STEUCTUEE 47

duties, and have rank, power and obligations as public officers.
They are bound to serve if elected and cannot resign without
reasonable excuse. Acceptance of reelection is optional. Pen-
sions are provided upon superannuation and for poor widows
and orphans of deceased officials.

The Silesian landschaft is administered by an executive
council, district boards, district standing committees, and
circle meetings. Over these bodies are the permanent com-
mittee and the general assembly.

I. The executive council is composed of the president,
three vice-presidents and two counselors. It is the managing
head of the system, represents it against the outside world,
and carries on the business in its own name.

The president is appointed by the King of Prussia from
three candidates elected by the members. He must be a
Silesian of noble birth. He receives no salary. He must
have held office formerly in the landschaft. He is head of
the executive council and presides, if he wishes, at the meet-
ings of the permanent and any other committee. He may
exercise disciplinary powers of warning and fining over the
executive council and may appoint an examiner to investigate
the acts of its members or of any other official, but he can-
not dismiss a member of the executive council without the
approval of the King. Once every four years, with one of the
coimselors, he must make a personal inspection of each dis-
trict. His alternate in the council is the ranking vice-presi-
dent. A special commissioner, appointed by the King for the
period of the session, may take the place of the president in
the permanent committee and general assembly.

The three vice-presidents are elected from upper, middle
and lower Silesia by the members living in these divisions,
subject to the approval of the King. Only those members are
eligible who have finished a course in the university and have
acquired an exact knowledge of the part of the country
they represent. They receive no salary but, in common with
the president, are allowed traveling expenses and the per diem
given to members of the permanent committee.

The two counselors are appointed by the executive council

48 ETJEAL CEEDITS

but in order to avoid an objectionable selection, a report on
the candidates for the office is obtained from every district.
They must be graduates in law and have passed the examina-
tions qualifying them to be judges. They are employed as
salaried and permanent officials. The counselors are author-
ized to sign contracts for the landschaft and bank, to make
entries in the register regarding the loans, mortgages and
other conveyances, and to certify documents relative to pay-
ments and cancellations. They act only in an advisory
capacity, however, unless the other members of the executive
council are tied, when their vote decides.
■■ The executive council meets weekly. Its duties are to
enforce the laws, rules and regulations, to guard and defend
the interests of the landschaft, to supervise the bank, the
bureaus, and the administration of the funds and of the
entire system at headquarters and in the districts, and espe-
cially to see that uniformity of business methods is observed
in the districts. The district officials must submit their
accounts to the executive council upon request and carry out
the resolutions adopted by it.

All complaints agaiast the district boards must be filed
with the executive council, which makes its decisions upon
reports submitted by the parties or by investigating commit-
tees. The executive council acts as a court of first instance
in disciplinary proceedings against employees of the land-
schaft, as well as against all officials whose appoiatment is
not made by approval of the King or the Minister of Agricul-
ture. Appeals from its decisions go to the permanent com-
mittee but the decisions of the executive council are enforce-
able until set aside.

The executive council does not receive applications for
loans or attend to the granting of credit. But all the deben-
tures are made and issued by it in its own name and appraisals
of properties are subject to its revision; hence it has the
power to order a reduction in the amount of any loan con-
sented to by a district, or to veto it entirely by refusing to
issue debentures.
' II. Each district has a board composed of a manager, the

, SILESIAN LANDSCHAFT: ITS STEUCTUEE 4:9

superintendents of the circles within the district, and one
attorney. Some districts have two managers.

The manager is elected by the members of the district,
subject to the approval of the King. He must own a mort-
gaged estate in the district, be well-to-do, and be thoroughly
familiar with farming and the rules and regulations of the
landschaft relating to his district, and have served formerly
as a superintendent. He has charge of the business of his
district and must reside the greater part of the year at the
place selected for its headquarters, which he- must not leave
without notifying the executive council. He calls the meet-
ings of the district board and presides over them, but has
no vote except in case of a tie. He has wide discretion in
the exercise of his powers when the board is not in session.

The chief duty of the district manager is to administer
the properties sequestered or foreclosed upon, but he cannot
expend any money on them except to prevent imminent loss
which it is not possible to avoid until the meeting of the dis-
trict board. He supervises the operation of the branch bank
and the administration of the funds of his district. He has
a disciplinary power over subordinates but can remove an
ofBcial only upon order of the executive council; he may
suspend him, however, and send a report on the case forth-
with to the executive council. He is required to keep in
close touch with the circles, so as to prevent abuses and
wrongs which might jeopardize the credit of the association.
Where there are two managers in a district they alternate
every three years, so that only one exercises power at a time.
The supernumerary is a member of the district board and
may act as proxy of the first. In some districts the board
appoints a proxy manager from the circle superintendents.
The manager draws a salary and is allowed traveling ex-
penses. '

All circles have two superintendents and the larger have
three or four. Superintendents must be familiar with the
constitution and by-laws of the landschaft and thoroughly
acquainted with conditions in their circles. A superintendent
need not live within his circle. Sometimes even a man whg

50 ETJEAL CEEDITS

has no farm is selected, provided he inspires confidence and
is a guardian of minors, or a son of parents, or the husband
of a woman, owning an estate mortgaged to the association in
the circle. A superintendent, however, must be a Gentile, and
the land which he owns or controls be free of litigation. The
only excuses for not serving in ease of election are that he
is in charge of some estate, or is a member of some com-
mittee or an officer intrusted with the handling of fimds of
the association, or has already served a term as superin-
tendent.

Besides being a member of the district board, the superin-
tendent must watch carefully all mortgaged properties and see
that nothing happens to impair the credit and well-being of
the landschaft. If, for example, a borrowing member culti-
vates his farm in a shiftless manner, lets his live stock run
down or his buildings get out of repair, or contracts bad
habits, it is the duty of the superintendent to report the
facts to the district manager, who has full power to order an
investigation and evict the delinquent.

The superintendents are usually the persons commis-
sioned by the district board or executive council to do the
field work relating to loans, such as appraising or reapprais-
ing estates, collecting debts, and administering properties
taken over for the settlement of claims. The ranking superin-
tendent convenes the meeting of his circle, and aU official
conmnmieations with members must be made through him.
Superintendents are elected by their respective circles, and
are given per diems and traveling expenses.

The attorney is selected by the superintendent of his dis-
trict. He must be a graduate in law. His position is per-
manent and he draws a salary. He receives his instructions
from the manager, to whom he gives legal advice whenever
requested; he conducts lawsuits, draws contracts and other
papers connected with the business of the landschaft in the
district, and makes the entries regarding the loans in the
district register. The attorney has also certain duties to per-
form in the branch bank and in supervising the district funds.
He acts as lawyer, notary and clerk for the district manage-

SILESIAN LANDSCHAFT: ITS STEUCTURB &1

ment and as secretary to the district board, but has no vote
except in ease of a tie.

The district board meets usually on January 1 and July 1
of each year, on call of the manager, and is attended by one
superintendent from each circle in the district. Members
are allowed to be present as spectators. Action is taken by a
majority vote, the manager having no voice except in case
of a tie.

The board has charge of the affairs and funds of iiie dis-
trict. Within its area its powers are similar to those of the
executive council over the whole landschaf t. The chief duties
of the board are to pass on applications for loans, appraise
properties, execute loan contracts, receive payments from
borrowers, and bring the necessary proceedings to enforce
recoveries in the event of defaults. It has power also to
grant extensions and to order the recall of loans.

III. There is a standing committee in each district to
attend to pressing business which cannot be postponed until
the next meeting of the board. It is composed of the dis-
trict manager, an attorney, and two to four superintendents
who are selected with their alternates for this purpose every
six months at the district meeting. This committee is con-
vened by the district manager whenever he sees fit, for the
purpose of publishing resolutions of the district and circles,
approving appraisals, granting credit when quick action is
required, transferring debentures, examining leases of mort-
gaged properties or other conveyances, and advancing money
to manage estates under forced administration.

IV. The final authority within the landschaft is the gen-
eral assembly. This is not, as its name suggests, a meeting of
all the members of the landschaft. It is composed of the
executive council, district managers and attorneys, and two
to four delegates from each district elected by the members
thereof. It is presided over by a specially appointed royal
commissioner or, in his absence, by the president. One of the
counselors, or, if neither is able to attend, one of the district
attorneys, acts as secretary and always takes the chair upon
the auditing of the accounts. Meetings are held behind

53 EUEAL CEEDITS

closed doors ; the public is excluded but members of the land-
schaft may attend as. spectators.

The assembly has no stated time for meeting. It is con-
vened only on extraordinary occasions, such as for the pur-
pose of amending the constitution or by-laws, changing busi-
ness methods or objects, borrowing money, or authorizing the
use of the funds of the association for purposes other than
those for which they have been created. But inasmuch as
its authority is supreme, officials and individual members
usually submit to the decision of the assembly various proj-
ects, questions, complaints and appeals.

The assembly is called by the executive council or by the
permanent committee. When it decides to take this step, the
executive council notifies the government and orders the
members to elect delegates. As soon as the election is finished
the executive council fixes the date for the meeting. No pro-
posals can be submitted to the assembly except those which
have been filed beforehand with the executive council. If
the circles wish to bring a matter before the assembly, they
must send it to the executive council through the district
board. If the executive council is in doubt or disapproves,
it must refer the matter back to the district board to have
the circles vote upon whether it should be sent to the assem-
bly. Also, if either the executive council or the permanent
committee originate a project which it wishes to submit to
the assembly, the same procedure must be followed to secure
the opinion of the members.

All proposals which have been approved by the circles are
referred to the permanent committee, which goes over them
with the executive council to decide whether they should be
finally submitted to the assembly. Voting in the assembly
is by groups, and motions are carried by a majority of the
votes. The delegates of each district under their manager
form a group, and each of the nine groups has two to four
votes, depending upon the size of the district. No resolutions
except those relating to the internal management and organi-
zation of the landsehaft are valid until approved by the king,
and all resolutions must be published in the official news-

SILESIAN" LANDSCHAFT: ITS STEUCTUEB 53

papers and duly promulgated to the district boards and circle
meetings before going into effect.

V. The permanent committee is in a measure the stand-
ing representative of the general assembly. It was instituted
to avoid the heavy expenses attendant upon holding the
assembly and because of the difficulty of convening it at
frequent or regular intervals on account of the cumbersome
and lengthy procedure of the call.

The permanent committee is composed of the district
managers, one delegate from each district elected by the resi-
dent members, and the executive council. The president of
the landschaft, or in his absence the first vice-president, acts
as chairman. One of the counselors is secretary, or, if he is
unable to attend, the president appoints one of the district
attorneys in his stead. The permanent committee convenes
annually during March or April at a day fixed by the execu-
tive council. A second meeting may be called if business
justifies it. The district managers can vote only upon the
amendment of an old rule or the passage of a new one. The
executive council also is restricted to voting on legislative
matters, except in the case of motions upon which its advice
is requested or by which its former decisions are put in
question.

The permanent committee receives the annual report of
the executive council. This report shows the loans granted
and interest rates thereon, the debentures issued and re-
deemed, the total amount of the outstanding debentures with
market quotations, the payments made by borrowers, the over-
due claims and measures taken to enforce them, and the num-
ber of evictions and results thereof, besides the condition of
the various funds, and the volume of business done with non-
members. It also includes the fijaancial statement of the
bank.

The permanent committee examines and passes on the ac-
counts of the executive council. At this examination the
alternate of the president takes the chair, and a district attor-
ney acts as secretary in place of a counselor. It also examines
and passes on the accoimts of the district boards, and from

54 ETJEAL CEEDITS

the reports and estimates submitted prepares the budget
for the coming year. It decides appeals from the decisions
of the executive council, gives opinions in doubtful eases
submitted by the executive coimcil, and announces the results
of all elections. Moreover, it determines whether proposals
filed with the executive council shall be referred to the gen-
eral assembly, and in the event of approval may call a meet-
ing of the general assembly on its own motion.

VI. The larger a district the more circles it has, the
aim being to make these fundamental administrative units
small enough to assure careful attention to the mortgaged
properties within their territories and to all the details of
the management of the landschaft.

The circle meetiags are held semi-annually in January
and July, upon call of the ranking superintendent. Extra
calls may be made by the executive council or district boards.
Fourteen days' notice must be given, stating the object of
the meeting, to which is appended, if the district manager
so directs, an account of the business and financial condition
of the landschaft and an outline of the minutes of the last
meetings of the district board and permanent committee.
The notice may be sent by registered mail if covered and
sealed.

Members in good standing who are not in default on
their loans may vote in all circles in which they own property
mortgaged to the landschaft. The owner of four to seven
farms located in the same circle may cast two votes, and the
owner of eight or more farms, three votes and no more. At
elections a member has but one vote no matter how many
estates he may own. Voting may be by mail. Proxies are not
allowed except for municipalities, public corporations, com-
panies, the German Emperor, and princes of the Prussian
royal house. Minors and women must be represented by
proxies, since they are not permitted to vote in person.

The jurisdiction of the circle meetings extends only to
matters of a purely local nature, questions regarding the use
of the district funds or relating to the raising of money for
the needs of the landschaft, the allowance of expenditures in

SILESIAN LANDSCHAFT: ITS STRUCTUEE 55

excess of estimates in the budgets, the increase of salaries,
the creation of new positions, and the approval of proposals
to be submitted to the general assembly. It has nothing
to do with the admission or expidsion of members or with the
granting or recalling of loans.

The usual routine at a circle meeting is the reading of a
report by the superintendent on events of interest to the land-
schaf t and reports submitted by or through the district board ;
annually the circle receives and examines the budget and the
accounts of the finances and business of the landsehaft. When
a ballot is taken for any purpose a majority prevails. If it
be a question of borrowiag money for the landsehaft, the
vote of a majority of the circles gives the decision of the
district, and the vote of a majority of the districts gives the
decision of the landsehaft. At the election of a district man-
ager the votes of the various circles in the district are com-
bined; where there are three or more candidates the plurality
decides. This is the case also when a vote is taken for the
whole landsehaft.

The circle meeting is the only place where members can
participate in the management of the landsehaft. They are
allowed no part in the general assembly, executive coun-
cil, in the boards or committees of the districts; hence they
have not as much power as shareholders in an American cor-
poration. But they possess the right, which can never be re-
fused, to have their properties appraised and to be awarded
debentures up to a certaiu proportion of their value in ex-
change for their mortgage contracts. In return for this, how-
ever, they must obey orders of superiors over some of whom
they have no control, and stand ready to perform irksome
duties for moderate compensation or none at all.

Members are bound to report aU negligence or tortious
acts of neighbors which injure their farms or credit ; and in
case of carelessness in this particular, or if they fail to dis-
charge their duties in any respect, they are liable to warning
and even arrest by the authorities of the landsehaft and finally
to expulsion. Should they resist or use violence to prevent
the execution of orders, the courts will intervene in a sum-

56 ETJEAL CEEDITS

mary way. But legal proceedings by a member against the
landschaft are not allowed; he must abide by its decisions.
Appeals from the decisions of the district boards go to the
executive council, and then to the permanent committee.

VII. The bank of the Silesian landschaft was organized
under a special act in 1848 as a joint-stock company with
about $1,000,000 of capital all supplied from the funds of the
districts. The executive council of the landschaft is the super-
vising head of the bank, and appoints two of its three man-
agers. The other manager is appointed by the permanent
committee.

The officers of the bank are considered ofiScers of the
landschaft and so are public ofBcials. They cannot be re-
moved except for cause. They must obey the instructions of
the executive council in all matters relating to the landschaft.
In dealings with other parties they may follow their own
judgment and wishes. The counselors of the landschaft act
as attorneys for the bank. A royal commissioner is entitled
to attend meetings of the executive council when it sits in
committee on the bank; he has the right also to inspect its
books and accounts. Eeports must be rendered every three
months, and oftener if required by the council. The annual
report is submitted to the permanent committee, which causes
it to be transmitted to the district boards.

The purpose of the landschaft in founding the bank was
to benefit its members, to create a safe outlet for investing
disposable funds, and to improve farm credit facilities in
Silesia. The bank receives deposits, discounts and accepts
bankable paper, makes loans to members and other persons,
and accords credit on accounts current covered by collateral.
The dividends received by the district associations are applied
to the reduction of expenses.

The bureaus which the districts conduct for according
credit to resident farmers who are not members of the land-
schaft were organized in 1849, a year before the last disabil-
ities of the serfs were removed by the law. The landschaft
distributed about $175,600 among the districts as a working
and guarantee fund for this business, and furthermore

SILESIAN" LANDSCHAFT: ITS STEUGTUEE 57

agreed to assume full liability until this fund, increased by
its earnings, should equal five per cent of the outstanding de-
bentures of the bureaus. This ratio was reached in 1867,
so these debentures, denominated 'Tlfitera D," are no longer
a charge on the funds or members of the landschaft. Their
security rests solely upon the mortgages of non-members,
backed by special funds. The busiaess of the bureau is kept
separate and distiact from that of the members' association.

CHAPTER VII

THE SILESIAN LANDSCHAPT: ITS OPEEATION

Methods of Bank and of Bureaus for Non-members. — Obligations of
Landsehaf t. — Procedure in Obtaining a Loan. — ^Forms of Deben-
tures Received: litera A and Litera C. — Obligations of Bor-
rowers.— Benefits to Members. — ^Eights of Borrowers. — ^Liabili-
ties in Case of Default. — Loans to Non-members. — Landsehaft
Bank,

The bank and the district farm-mortgage bureaus for
non-members are now organic parts of this great land-credit
system of Silesia, but their business methods are quite dif-
ferent from those of the landsehaft properly so called. The
bank operates with its own resources and the bureaus operate
against special funds; neither involves the members of the
landsehaft in any liability. Moreover, they are not required
to accommodate any person whom they do not wish to serve.
Their work is entirely voluntary and discretionary.

But as regards the true landsehaft in the system, the' obli-
gations which it incurs are a direct charge against its mem-
bers or funds, while every Silesian citizen who has a property
of the kind designated by the orders and edicts mentioned
above, has a right as a matter of law to have it appraised
and himself to be admitted to membership in the association
and to its benefits; and when once a member, he cannot
be expelled nor will his loan be recalled so long as he obeys
the rules and regulations. The credit which must be accorded
to him may continue practically until he himself is willing
or able to relinquish it.

A landowner who wishes to obtain a loan as a member
must apply to the office of the landsehaft in the district in
which his property is situated. After the eligibility of the

58

SILESIAN LANDSCHAPT: ITS OPERATION 59

property is determined by the board and approved by the
permanent eommitteei the property is appraised. The net
annual profit as estimated by the government for the land
tax, multiplied by 35, less certain amoimts, must be accepted
for the value if satisfactory to the owner. If the owner thinks
this value too low, the landschaft must proceed to a special
appraisement at his expense. This is made by a committee
appointed by the district manager, consisting of the district
• attorney, the superintendent of the owner's circle, and a super-
intendent of another circle.

The committee examines the receipts and expenditures
of the owner for the preceding six years, tests the soil and
subsoil, inspects the live stock and equipment, and ascertains
the annual revenue of the farm. This is reckoned in bushels
of rye for arable lands, the highest calculation being 48
bushels per acre. If the yield is less than 11 bushels, the land
is rated as meadow and the value estimated in himdredweight
of hay. If the yield is less than 34 hundredweight per acre,
the land is considered good only for grazing, and the value is
estimated by the actual hay gains. Garden plots are valued
by.^ their actuali gains.

The revenue so determined is then multiplied by 20 and
reduced six or ten per cent or even more if the live stock and
equipment are insufficient. For each two to four acres there
should be one head of kine, or two to four foals, or ten to
15 sheep, or 15 to 35 lambs. For each 37 or 40 acres there
should be four horses or six oxen. The final estimate is com-
pared with the price at which the land was bought, and if the
buildings are adequate and in good repair, four-sixths, i. e.,
two-thirds, of the value of the property is taken as the maxi-
mum amoimt that the ojvner may have on loan. The rules
for appraisals were made by the general assembly. The ap-
praisers are personally responsible to the landschaft, but not
to third parties, for errors and false returns. Every one of the
numerous details of the rules must be followed carefully, so
the work is slow and the estimates very conservative.

After the appraisal has been passed upon by two other
circle superiatendents and approved by the district board,

60

EUEAL CEEDITS

the mortgage contract is drawn up and submitted with all
papers to the executive council and the deal is closed. But
ordinarily no money changes hands. The credit extended is
divided into two parts, one equaling three-sixths, the other
equaling one-sixth, of the value of the estate. For the first

Debenture Bond Litera A.

Series.

No.

The Silesian Landschaft's Privileged

Debenture Bond Lixera A.

of Marks

German gold coin and three and one-half
per cent interest per year.

Issued in accordance with the regula-
tion of January 22, 1872.

Based on a mortgage of equal amount
and on the general guarantee of all the
members.

Kedeemable and payable by the Land-
scbaft, but not subject to the call of the
bearer.

Breslau, the • day of 19 .

[Seal]

Silesian General Landschafi Directorate

Eegistered in the debenture bond reg-
ister, volimie. . . .page. . . .

Certified by Counselor

President.

.Marks

With the de-
benture bond in-
terest coupons
have been issued
for the current
period and a re-
newal coupon for
the following pe-
riod.

Interest and
renewal coupons
are renewed peri-
odically after the
last renewal cou-
pon has been re-
turned by the
bearer. (I, 6, of
regulat i on of
Jan. 22, 1872.)

part the borrower receives debentures denominated "Litera
A." These are direct obligations of the central administra-
tion and also a direct charge against a mass of mortgages on
properties always double the value of the debentures by reason
of this arrangement; hence Lit. A. debentures are quoted
highest of all. For the second part he receives debentures
denonunated "Litera C." These are direct obligations of the

SILESIAN LANDSCHAFT: ITS OPEEATION 61

district and their lien is subordinate to that of the others;
hence their quotations are lower and they are taken only
when the borrower wishes to ntUize his credit to its full ex-
tent and encumber his land to two-thirds its value.

Both kinds of debentures, however, are executed by the

Debenture Bond Litera C.

Series.

No.

The SttESiAN Landschaft's Privileged

Debenture Bond Lftera C.

of Marks

German gold coin and three and one-half
per cent interest per year.

Issued in accordance with the regula-
tion of November 22, 1858; October 6,
1868, and October 30, 1872. Based on a
reserve fund, a mortgage of equal
amount and the Special Funds of the
Landschaft. Redeemable and payable
by the Landschaft, but not subject to the
call of the bearer.

Breslau, the day of 19 .

[Seal]

Silesian General Landschaft Directorate

Registered in the debenture bond reg-
ister, volume. . . .page

Certified by Counselor

President.

executive council and are legal claims against the entire land-
schaft. They alike bear four, three and one-half, or three
per cent interest. Five per cent debentures are allowed but it
has not been necessary to issue any of them since 1872. The
borrower chooses whichever rate he pleases, his choice of
course depending upon the condition of the money market.

62 ETJEAL CEBDITS

The rate chosen nmst exactly correspond with the rate of his
loan. He sells the debentures at the bank of the landschaft
or wherever he can get the best price, and thus obtaias the
money for which he has mortgaged his land. If he be unable
to dispose of his debentures at par, the manager of the dis-
trict may grant him a cash loan at four per cent equal to the
difference between the market quotation and the face value,
but this sum must never exceed six per cent of the face value.
On the other hand, the landschaft always gives cash for the
full amount of the loan whenever the debentures are quoted
above par at the time the mortgage is taken. These are the
only instances when loans are realized in money.

In return for these debentures the borrower obligates
himself to pay their interest and one-half of one per cent of
their principal a year for their amortization, and an addi-
tional one-sixth of one per cent to cover the cost of business.
If he utilizes his entire credit, he becomes obligated to pay
one-twelfth of one per cent more to cover the cost of business
and one-fourth of one per cent to the district for 16 years
as a reserve for Litera C debentures. These contributions are
combined with the interest to form an annuity payable in
semi-annual instalments. He furthermore agrees to pay the
principal in lump on six months' notice, pay four per cent
interest on arrears, and abide by the constitution and rules of
the association. The borrower pays the stamp tax and regis-
tration fees, whereupon his contract and mortgage are duly
filed in the public registration office and transcripts thereof at
headquarters and in the district. Only first mortgages on
land entirely free of other encumbrance are taken.

The borrower's contract does not specify or fix the period
during which the annuity shall be paid. It requires him to
pay the full annuity as long as he remains a member of the
association, consequently the amount of his interest and dues
continue the same each year until his loan has been entirely
extinguished. At present the borrower does not pay any
contribution to the cost of business on Litera A debentures,
while on Litera C debentures the contribution is fixed at one-
tenth of one per cent and it is collected in only five of the

SILESIAN LANDSCHAFT: ITS OPERATION 63

districts. The one-fourth of one per cent on Litera C de-
bentures also has been discontinued. The reason is that the
regular income of the landschaf t is sufficient to meet current
expenses and the funds of the districts have reached the maxi-
mum required by law, but the payment to cover the cost of
business is automatically restored if expenditures run over
receipts, while the additional payment on Litera C deben-
tures may be restored at any time by resolution of the per-
manent committee. Borrowers now pay only one-half of the
costs of special appraisals.

Every profit or saving inures to the members. They enjoy
the lowest interest rates because the landschaft, being com-
posed of the members themselves, has no object in making
gaia out of them. In all probability they will never be pressed
for the repayment of the principal, since only a national
calamity would oblige the landschaf t to exercise the right it
has reserved for calliag in the loans. There are other advan-
tages not obtainable from ordinary lenders. If a borrower
cannot pay his annuity the district manager will give him a
respite until the next meeting of the district board, upon a
written request sent 14 days before the time set for payment,
if the cause of the trouble is certified to by the superintendent
of the circle. The board may extend the time for six months,
while the permanent committee has the power to enact stay
laws for a district or the entire landschaft in the event of an
overwhelming necessity. But such favors are possible of
course only when the landschaft has funds on hand sufficient
to meet the interest on outstanding debentures.

Although the landschaft may never recall or alter the
credit it extends, the borrower has the right to have his in-
terest reduced if he can get a better rate, and also to make
advance payments on the principal in whole or in part, using
either cash or debentures for this purpose. The reduction
of the interest is effected by redeeming outstanding deben-
tures at the member's request and issuing to him in their
stead new ones of a lower rate. But the transaction is made
at the member's expense and he must put up a three per cent
margin in cash or debentures to secure the landschaft against

64 EUEAL CEEDITS

any loss if he shoulcl fail to complete the deal. The reduction
of the principal is accomplished in the same way. The bor-
rower buys debentures in the market and turns them in to
the association as so much cash; or else he pays cash and the
landsehaft buys the necessary debentures for him, or calls in
the required amount for redemption. Three months' notice
of cash payments and seven months' notice of payments by
debentures must be given in order that the association may
have time to purchase them or to take the regular steps for
their redemption.

The borrower has also certain rights in the amortization
fund, created by the instalments paid by borrowers on their
debenture loans. When his payments into this fund for
Litera A debentures equal one-tenth of his debt, he may have
his mortgage cancelled to that extent, or he may take out a
new loan for the amount, or use it as a current account at the
landsehaft bank. The manager of the district decides whether
this privilege shall be granted. Moreover, to save the mem-
ber from the temptation of spending it, the district manager,
at his request, will make a note on the registers that the
amount is barred from further use by the borrower imtU his
entire loan has been paid. The borrower's share in this fund
can never be attached by third parties. He cannot touch it
himself imtil it reaches the proportion mentioned, and so
long as it remains in the landsehaft it belongs to the farm
and passes with it to any new owner.

If the member defaults his annuity or does or fails to do
any act in violation of his contract to the injury or jeopardy
of his credit, and no extension or remission has been granted,
his mortgaged estate becomes immediately subject to the con-
trol of the landsehaft. The landsehaft, without order of court
or formality of law, may seize and sell at auction the farm
products on hand, the live stock or any of the personal prop-
erty, or sequester the estate in whole or in part and lease or
operate it in its own behalf. This may be done also if the
security becomes impaired even through no fault of the mem-
ber. But leniency is always shown to the delinquent and every
effort is made to restore him to possession as soon as arrears

SILESIAN LANDSCHAPT: ITS OPERATION 65

are collected. In the meantime a portion of the property is
usually left him to live on.

The manager of the district has powers as judge and
sheriff in such a proceeding. He must see that the lessee
agrees to abide by the rules of the landschaft if the estate
is leased. If he decides to operate the estate, he designates
some circle superintendent as trustee or receiTer. The super-
intendent appoints some borrowing member who owns a mort-
gaged farm in the neighborhood as overseer. Acceptance of
this appointment is obligatory. Should the person appointed
refuse to serve without being excused by the board of the dis-
trict, he is liable for any loss that may have occurred. His
duties are to supervise the sequestered farm, attend to the
receipts and expenditures, and render a report to the board
once a year or oftener. He may or may not be paid. The
circle superintendent also hires a trustworthy farmer of ex-
perience to do the agricultural work under the supervision of
the overseer, who submits monthly reports to him. A mem-
ber may be compelled to work the land.

If the arrears of the delinquent member cannot be recov-
ered by means of this sequestration, the landschaft may apply
to the courts to have the mortgaged estate sold. This is not
a foreclosure suit. It is a swift and summary proceeding, but
notice of bringing it must be duly published. The landschaft
does not have to offer any evidence except its registers and
records. The entries therein, showing the title of the prop-
erty, the execution of the mortgage and the debt of the owner,
must be accepted by the court as proof. The court's sole
province is to determine the authenticity of these documents,
and if they are found to be genuine, it must render judgment
against the defendant and order the sale demanded by the
landschaft. A third party cannot intervene in the proceeding.
If he feels aggrieved his only recourse is a direct suit against
the landschaft for damages.

The sale is made at auction by the public administrator.
The landschaft remains in charge until the new owner takes
possession. It may bid in the property to protect its claim
and hold it for one -year without paying the transfer tax pre-

66 EUEAL CEEDITS

scribed by tbe general law. If it cannot resell within that
time, it may pay one-twelfth of the taz in the second year
and the balance in the third year. But it cannot hold per-
manently any real estate of a value exceeding $1,300 without
the consent of the Minister of Agriculture.

No member of the association who has had any duty con-
nected with the ease can acquire the estate by purchase until
three years after the sale. If the proceeds are more than
enough to satisfy the judgment, the surplus is turned over
to the defendant. If they are insufficient, the landschaft may
appropriate his share in the amortization fund to make up the
deficiency. Any balance in this fund is then given to the
new owner of the property. The membership of the debtor
ceases with these proceedings and his credit is abrogated.

Non-members who are accorded the credit facilities of the
district bureaus must give their consent in writing to the
use of these special summary proceedings against them, and
must agree also to obey iustructions issued by the officials of
the landschaft. Appraisals of the property of a non-member
are made by the same rules in force for members. Two-thirds
of its value is the maximum credit allowed. Bach district has
two or more permanently employed and salaried appraisers
elected by a committee composed of the manager, attorney
of the district and a superintendent from each circle. These
appraisers need not be members. The committee conducts the
business of the bureau.

The loans to non-members are all made in debentures.
These Litera D debentures now bear 3.5 per cent interest.
The executive council has authority, however, to issue them
at three, four, four and one-half, and five per cent, but an
order must be obtained from the permanent committee for
the five per cents. Sums which may be evenly divided by $34
may be paid on the loan in advance. Debentures of the land-
schaft may be used for this purpose.

All loans to non-members are recallable on six months'
notice, and are repayable by annuities of four and one-tenth
of one per cent, in semi-annual instalments. Of this amount,
3.5 per cent pays the interest on the debentures, one-tenth goes

SILESIAN LANDSCHAFT: ITS OPERATION 67

to cover the cost of business, and one-half of one per cent
is placed in the amortization fund. The borrower has rights
in this fund similar to those of members, when his share
equals one-foiirth of the principal of his debt. No extensions
of over six; months are allowed.

The landschaft bank does not make loans on real estate.
Its chief object is to serve as the depositary of the funds of
the landschaft, act as its financial agent, and facilitate the
circulation of its debentures. It makes loans to holders of
these debentures up to 85 per cent of their face value, and also
accords credit to borrowers from the landschaft against their
free balances in the amortization fund. Farmers may obtain
loans from the bank up to two-thirds the value of pledged
agricultural products of a not easily perishable nature. The
bank has not been given any privileges in the way of special
proceedings for recovering its claims. It transacts its busi-
ness as an ordinary banking company imder the general laws.

CHAPTEE VIII

THE SILESIAN LANDSCHAFT: ITS FUNDS AND
DEBENTURES

Investment of Interest. — General Fund. — Amortization Fund. — Guar-
anty Fund. — ^Bank Fund. — ^Accounts. — ^Reports. — ^Denominations
of Debentures. — Debentures Only in Exchange for Mortgage
Contracts. — Eights of Debenture Holders. — Redemption of De-
bentures on Eepayment of Loan. — Debentures as Investments. —
Litera B Debentures. — Condition of Silesian Landschaft in 1912.

Dates of payment are so fixed that mortgagors pay inter-
est on their loans six months before it is turned over to
holders of the debentures. This is done to give ample time
to enforce collection in the event of default. The interest
is deposited at interest in the landschaft bank as received and
drawn out as needed. All other moneys are invested in the
landschaff s own debentures. No other form of investment is
allowed. Speculation is prohibited and no real or personal
property may be owned by the landschaft beyond what is
necessary to its existence. Since its funds are thus kept in
its ovm debentures and loans are made in the same way, the
operations of the landschaft are represented by its own paper
and very little cash is required for carrying on its business.
The annuities of borrowers are split up into their component
parts and distributed among the various fimds to which they
belong. Other payments of borrowers and all receipts and
disbursements of the landschaft are similarly disposed of, so
the money goes out by retiring debentures, or making new
loans shortly after it is paid back by the borrowers, and is
continually in motion.

The portion of the annuities which is assessed for the cost
of business is placed in the general funds of the districts.

68

SILESIAN LANDSCHAFT: ITS FUNDS 69

The maximum assessment of one-sixth of one per cent must be
maiutained untU the income from this source suffices to pay
seven-twelfths of the district expenses. After that point is
reached, it may be reduced, provided $300 is always left in
the general funds for every $1,000,000 of debentures in cir-
culation. The same rule applies for the maximum of one-
twelfth of oiie per cent for Litera C debentures.

The central management and each district has a general
fund. That of the central management was started with the
grants of Frederick the Great. Two per cent of the revenue
of these old grants is devoted to pensions for oflBcers and their
families. The rest goes into the general fund, as do also
unclaimed debentures and coupons, various fees, such as
charges for registering debentures and appraising properties
of third parties whose applications for membership have been
rejected, incidental gains, the earnings of these accumulations,
and lastly sums borrowed from the outside in case of necessity.
Out of the general fund of the central management are paid
such expenses as losses on defaulted mortgages, expenditures
on sequestered estates which secure latera A debentures,
allowances and salaries of the ofBcers and employees of the
general stafE, the cost of the upkeep of its buildings, and the
purchase of supplies.

The expenses paid from the general funds of the districts
are such as are connected with their particular parts of the
business of the landschaft. The district general funds are
maintained by the one-sixth of one per cent commission on
Litera A debentures, the extra one-twelfth of one per cent
charged members who receive Litera C debentures, dividends
from the landschaft bank, various gains, and whatever appro-
priations may be made by the executive council or permanent
committee. The TniTiimuTii for the size of these fimds is the
same as that of the central fund, $200 for each $1,000,000
of debentures in circulation. This has been reached in four
districts; hence only five districts continue the extra assess-
ment for Litera C debentures.

The portion of the annuities which are paid by members
for the reduction of principal are placed in their correspond-

70 EUEAL CEEDITS

ing amortization funds for Literae A, C and D debentures.
The first source of these funds is the obligatory one-half of
one per cent paid by all borrowers ; they include also voluntary
payments and all profits and unneeded surpluses of other
funds. For Litera C debentures is added the one-fourth of
one per cent paid for 16 years by mortgagors who borrow up
to the limit of credit.

For Litera D debentures a special guaranty fund, as well
as a special amortization fund, has been created. In general
the annuities of non-members go into the latter, but one dis-
trict retains one-tenth of the annuity to compensate itself
for its trouble and expense ; in all other districts the one-tenth
goes into the guaranty fund. This guaranty fund was started
in 1849 by $171,600 set aside for that purpose by the central
management and distributed among the districts. The profits
of the business in aU except the one district mentioned have
been added to it for many years. These two funds must be
invested in debentures of the landschaft; for this purpose all
three classes of debentures are eligible.

The payments for the outstanding debentures issued in
the original form for the earliest loans are turned into the
funds of the central management.

The operations of the landschaft bank are secured by its
capital stock and a reserve to which 15 per cent of the earn-
ings is added each year.

A separate account in the amortization funds is kept for
every borrower and to it are credited all payments he makes
and his share of the profits. It is debited with withdrawals,
defaults and expenses which he has caused the landschaft, to-
gether with his share of the losses sustained by the landschaft.
This account is balanced every six months. Although it runs
with the land and does not belong to the borrower personally,
the landschaft bank will grant him a loan against it if he is
in good standing, while the district manager will allow him
the privilege of using it in the ways already indicated.

The cancellation of the borrower's mortgage is made as
a matter of course when his credit account in the amortiza-
tion fund equals his debt. But if a member should request

SILESIAlf LANDSCHAPT: ITS FUNDS 71

that his balance be left in the treasury, the landsehaft will
accord him credit anew without examining his qualifications
for membership or reappraising his property. This privi-
lege is limited to one year. The landsehaft is able to do
this without risk because it keeps itself fully informed of any
deterioration of the properties or change in the condition of
members. Siace the amortizing contributions of members
must all be invested in debentures of the same series and
interest rates as members received for their mortgages, com-
pound interest runs in their favor to hasten the extinction of
the loans.

Brief statements regarding all funds must be forwarded
by the executive council and the district boards to the circles
for their information at their January meetings. Complete
reports, together with estimates of expenses for the coming
year, must be rendered to the permanent committee in time
for the committee with the executive council to prepare the
annual budget therefrom to be sent by April 1 to the circles
for approval. The largest sum which may be expended in
excess of the budget is $108 for a district board and $216
for the executive council. Pajrments of borrowers for the
difEerent funds may be received by the landsehaft bank or at
headquarters, but as a rule they are made at the offices of the
districts, and the districts place the portion belonging to the
central management to its account at the landsehaft bank
every six months.

The King of Prussia has the power to order the landsehaft
to allow members to withdraw their entire balances in the
amortization funds. This power was exercised during the
financial disturbances in 1848, 1855, and 1904. In the wars
of 1812-14 Napoleon confiscated aU funds for military pur-
poses and so upset the calculations made for the extinguish-
ment of the loans. The state can divert any of the funds
from their regular use but no creditor of a member may
touch them.

Debentures are payable by the landsehaft, but are
drawn without any fixed period of maturity. They particu-
larly state that they are not subject to recall by the holder.

72 EUEAL CEEDITS

but are redeemable only at the will of the landschaft. They
are made in series and indicate on their face the fimds and
classes of securities back of them. The denominations of
Literse A and C debentures run from $24 up to $720; of
litera D debentures from $24 up to $1,200, and are drawn
payable to bearer or in the name of the holders as the bor-
rower prefers. Coupons are attached for ten years' interest
and a "talon" or certificate entitling the holder to another
set of coupons and a talon.

The landschaft does not keep any debentures on hand
for sale to the public. They are disposed of only in exchange
for mortgage contracts. The effect of this exchange is that
a borrower divides his loan into a number of convenient parts
which may be easily sold anywhere in Germany, because the
Silesian landschaft has a national reputation and the holders
of the debentures know that the provincial government con-
nected with it will protect their rights.

The holder of a debenture is entitled to the payment of
interest at various designated places in the Empire, and also
to the payment of the principal when the debenture is called
for redemption. If the landschaft should default, the holder
of a litera A debenture may bring suit and ask the courts
for a recovery out of the mortgages acquired at the issue of
its series, and then out of the collective liability of the mem-
bers. But neither of the other classes of debentures is a
charge against this liability of the members. The holder of
a Litera C debenture may ask for a recovery out of its amor-
tization fund, then out of the mortgage of its series, and
finally out of the general fund of the district in which these
mortgages were taken. The holder of a Litera D debenture
may ask for recovery out of its amortization fund, then out
of the special guaranty fimd, and then out of the mortgages
of the non-member borrowers of the issuing bureau.

Every settlement of a loan by voluntary payment of the
borrower or by legal proceedings requires the redemption
of a corresponding amoiont of debentures of the kind iq which
the loan was made. The face value of the debentures in cir-
culation must never exceed the unpaid principal of the out-

SILESIAN" LANDSCHAPT: ITS FUNDS 73

standing loans. The landschaft is compelled each year to
make a report to the government on its loan and debenture
operations, and a royal commissioner appointed to superTise
the landschaft sees that they properly balance one another.

The landschaft obtains the debentures it wishes to redeem
either by purchase at the bourse or by calling them in by
■drawing lots. The caU must be announced in the official
newspapers of Berlin and Breslau and notices of it must be
posted in the bourses of those cities and at aU offices of the
landschaft and its bank. The debentures to be withdrawn
must be specified by numbers, series and interest rates. Pur-
chased debentures need not be listed in the call.

When the debentures are thus recalled they are consid-
ered as matured and the interest stops running. The land-
schaft sets aside a sufficient sum to redeem the recalled de-
l)entures and holds it at two per cent interest or invests it in
■other debentures for the owners. Coupons not presented
within four years and debentures not redeemed within 30
years become null and void and are forfeited to the general
fund of the central management. Provision is made for
issuing duplicates for debentures which have been damaged
or proved to have been lost or destroyed. Both coupons and
debentures payable to bearer may be registered in the name
of the owner without any charge. Debentures may be de-
posited with the landschaft for safekeeping and exchanged
for a registered receipt for a small fee. Eedeemed debentures
can never be restored to circulation. They are cut with scis-
sors, marked vrith a cancellation stamp, and burned after three
years. The debentures of all classes of the Silesian land-
schaft are lawful investments for funds of savings banks, in-
surance companies, public corporations, trustees, executors and
guardians.

There appears to be a class lacking among the kinds of
debentures described. The omission is only apparent. No de-
bentures were ever issued which might have been denominated
"Litera B." The absence of this letter explains an historic
incident which discloses the defects of the Silesian land-credit
system as first devised. In the early part of the last century

74

EUEAL CEEDITS

complaints were made that the low valuations fixed by the
management of the landsehaft on lands, the limitation of
loans to one-half of these valuations, slow and technical busi-
ness methods, and the want of regular amortization, inter-
fered with the extending of reasonable amounts of credit to
members and discouraged landowners from joining the asso-
ciation, while the privilege which the landsehaft had of taking
possession of mortgaged properties and leasing or farming^
them until its claims were satisfied, prevented owners from
getting loans on second mortgage from other lenders.

On account of these defects of the old landsehaft a new
association was formed on June 8, 1835, under the name of
the Eoyal Credit Institute for Silesia. Its heads were ap-
pointed by the King, while the ofiBcers of the landsehaft could
be called upon to manage the properties mortgaged to it if
sequestered for arrears. The Institute was authorized to issue
debentures styled "Litera B," even beyond two-thirds the
value of the land, and also to take in security properties al-
ready mortgaged to the landsehaft. This new concern was
dissolved on March 4, 1850, owing to the fact that the old
landsehaft had gradually made the needed reforms and ab-
sorbed the busiuess of its rival. But inasmuch as debentures
Litera B were in circulation in the province the SHesian
landsehaft decided not to adopt this name for any subsequent
issues.

In 1912 the amount of the loans made by the Silesian land-
sehaft to members during the year was $850,162, and the total
amount of loans outstanding was $97,919,605, secured by
1,888 mortgaged estates. This was cover for debentures as.
follows :

Old landsehaft

debentures $6,153,307

Litera A

debentures 72,517,214

Litera C

debentures .... 19,249,084

3 per cent
debentures

3.5 per cent
debentures

4 per cent
debentures

.. .$33,891,869
... 54,930,371
. .. 9,097,365

SILESIAF LANDSCHAFT: ITS FUNDS 75

The general funds amounted to $3,932,763.35, and all
except $808,740.63 of cash and accounts received were invested
in debentures.

The amount paid into the amortization funds was 18.58
per cent of the debt for the old landschaft debentures and
7.87 per cent for Litera A debentures. For Litera C deben-
tures the amount -was, 9.37 per cent plus 17.06 per cent into
the special reserve.

Duriag 1911 seven estates were sequestered. One of them
was released and two were sold. In 1912 $39,413.39 of prin-
cipal and $19,833.73 of interest were in arrears ia the remain-
ing four cases. In addition, 19 estates were $12,396.99 in
arrears on interest payments.

The amount of the loans made to non-members during the
year was $875,881, and the total amount of loans outstanding
was $52,409,274, secured by 15,996 mortgaged properties.
This was cover for debentures Litera D as follows:

3 per cent debentures $9,576,560

3.5 per cent debentures 34,098,500

4 per cent debentures 8,734,214

Mortgages to the number of 1,372 were in force on prop-
erties whose areas were 12.35 acres or under. Many of the
mortgaged properties were 50 acres or over. The smallest
loan was $23.81, and the largest $59,525, so it is impossible to
give an average for size.

The amount paid into the amortization fund for deben-
tures Litera D was 6.76 per cent, and into the reserve fund
2.28 per cent of the debt of members.

During 1911 eight mortgaged properties of non-mem-
bers were sequestered. Two of them were released and four
were sold. In 1912 $208.90 interest was in arrears in the
remaiaing two cases. In addition, 343 other mortgages were
$17,137.85 in arrears in interest payments; presumably this
was for sis months.

Hence, the total of the outstanding debentures issued
against mortgages on lands of members and non-members

76 EUEAL CREDITS

amounted to $150,328,879. The quotations of the debentures
varied as follows:

Old landschaft 3.5 per cent debentures 91.80 to 94.00

Old landschaft 4 per cent debentures 100.00 " 101.00

Literse A, C, and D 3 per cent debentures 81.20 " 84.20

Literae A, C, and D 3.5 per cent debentures. . 90.60 " 93.50

Literse A, C, and D 4 per cent debentures. . . . 99.65 " 100.85

CHAPTEE IX

THE OTHEE GEEMAN LANDSCHAPTS

Old Type of Laudschafts in Prussia. — State Aid. — Variations in Dif-
ferent Provinces. — ^Management, Members and Officers. — Credit
and Debentures. — Changes After Napoleonic Wars. — ^Privilege
of Eeealling the Loan. — ^Eeduction of Interest. — The "Conver-
sion."— Creation of a Sinking Fund. — ^Posen's Provincial Credit
Association. — The New Debentures. — Amortiaation of Loans by
Annuities. — Extension of Landschaft to Common People. — Ee-
duetion of Minimum for Credit. — Variations Among New Land-
schafts. — Central Landschaft.

Landschafts of the old type were formed in Prussia,
after the origination of the idea in Silesia, in Kiir and Neil-
mark on June 14, 1774; in Pomerania on March 13, 1781;
in West Prussia on April 19, 1787; in East Prussia on Feb-
ruary 16, 1788; and at Cella in Liineburg on February 16,
1790.

All these old landschafts were organized under the aus-
pices of the state and some were generously subsidized by it.
This state intervention was almost a necessity. The title
and value of land were imsettled by the ever present fear of
war and political disturbances. Hand labor was hard to get.
The methods of cultivation were crude and feebly productive.
Continual defaults, stay laws, and the delays or impossibility
of foreclosure frightened away capital from agriculture, and
farms were being abandoned because of lack of funds. Al-
though prices of food stuffs were inordinately high, revenues
were small and intermittent, and the owners of farms were
unable to pay regularly their taxes and war levies.

The trouble and the remedy appeared to be financial; so
the rest of the afflicted Prussian provinces, inspired by the
successful example of Silesia, decided upon the creation of
public intermediaries between borrowers and lenders to de-

77

78 EUEAL CREDITS

termine questions relating to titles and values, to issue bonds
to be used by investors instead of direct mortgage loans, and
finally to remove aU doubts about recovery by providing for
the guaranty of groups of owners of valuable estates, enforce-
able by special summary proceedin.gs, in place of foreclosure
under general laws.

The old landschafts are not all exactly alike. No
province but Silesia forced members to join or imposed per-
petual liability on their estates; nevertheless all estates eli-
gible for admission are liable on the debentures of the Litera
A class issued by the landschafts of Silesia, Pomerania, West
Prussia and Bast Prussia. In East Prussia the crown lands
and forests are subject to the liability. In the other prov-
inces the liability runs only against the estates actually mort-
gaged. This liability is limited to contributory payments
amounting to from 5 to 10 per cent of the indebtedness in-
curred by the landschafts of Westphalia and Saxony and by
one landschaft in Schleswig-Holstein. The two cooperative
associations in Saxony and Bavaria which extend real estate
credit according to the landschaft method fix the liability at
$250 per share, the number of shares which each borrower is
required to subscribe for being determined by the amount of
his loan.

There were differences also in structure. The land-
schaft in Silesia was composed of nine, that in Pomerania of
four, separate associations, each with its own constitution and
funds. In West Prussia the landschaft had four departments
with separate directorates, and in Kiir and JSTeumark it was
divided into four departments for convenience of administra-
tion. All these departments were subdivided into circles. In
East Prussia the landschaft was divided for the same purpose
into three departments, without any circles, and in Liineburg
it had only one oflBce. The structure of all these old land-
schafts still remains imchanged, except that East Prussia has
consolidated her three departments into one.

The scheme of management was about the same for all
the old landschafts. The members, although mutually liable,
had no voice in admitting members, in granting loans, or in

THE OTHEE GEEMAN" LANDSCHAFTS 79

any of the business. Their participation in the affairs of the-
association was confined to voting for officers and delegates or
on measures relating to changes in the constitution, raising-
money for general purposes, or diverting funds from their
prescribed uses. The ballots of members were taken at the
meetings of the lowest subdivisions. Over these were the
regional boards and officers, or, if the landschaft was not de-
centralized, the executive council and central staff. Then
came a select or permanent committee which represented the
general assembly when the latter was not in session.

Members were not allowed to sit in the general assembly.
This body, which held the supreme control within the land-
schaft, was composed of delegates and officers, presided over
by a representative of the Crown. The election of officer&
and amendments to the constitution and by-laws had to be
approved by the Crown. Supervision was exercised by a royal
commissioner. The landschaft could make no loans outside
of its designated territory, nor on any lands except the estates-
of nobles.

The officers in every old landschaft had powers as public
officials in the performance of their respective duties. Hence-
their adjudications as to titles and values and the documents,
and records made by them were incontestable proof in litiga-
tion between the landschaft and its members. Third parties-
could not dispute the claims or liens of the landschaft or
interfere with or delay its proceedings to enforce recovery.
Members of the landschaft were bound under penalty to com-
ply with all orders and do any service enjoined upon them,
in respect to its business.

The credit limit, as a rule, was fixed at one-half the ap-
praised value of the estate. Members in the Silesian land"-
schaft had a right in law to demand debentures up to that
amount in exchange for their mortgages. With the other
landsehafts the granting of membership and credit was op-
tional, but when once accorded, the credit was intended to
continue until the borrower wished or was able to end it. No
provision was made for the amortization of the loans. Th&
funds obtained from state subsidies or assessments on mem-

80 EUEAL CEEDITS

bers were not used for reducing the loans or the interest rate.
They were held with their earnings as reserves to meet cur-
rent expenses or to protect the landschaft or assist members in
emergencies.

Every debenture contained a description of the property
by which it was primarily secured, and the holder had to
exhaust his remedies under the general laws against the mort-
gagor before calling upon the landschaft for payment. Hence
the effect of the landschaft's signature to the bond was simply
to give it an easy negotiability. To facilitate circulation
coupons payable to bearer were issued in denominations from
$350 down to $3.50. They were all redeemable at the will
of the landschaft, and for a long time also on six months'
notice of the holder, a defect which subsequently jeopardized
the entire system.

Twenty-eight years elapsed after the establishment of these
first Prussian landschafts before a new association was suc-
cessfully launched; one formed for Schleswig-Holsteia in
1811 was dissolved. Within that period Napoleon Bonaparte
rose, reigned and fell. Europe had been politically, and so-
cially remolded, and the serfs in the German states had begun
to emerge from bondage with rights and needs which the old
landschafts were not framed to recognize.

The restriction of membership to the owners of large
estates and the employment of business methods which were
antiquated even at the opening of the century prevented these
institutions from meeting the requirements of the changing
conditions. Other defects were the lack of any provision re-
quiring the repayment of the principal of the loan, the privi-
lege conceded to holders of recalling the debentures, and the
peculiar legal status which saved the landschafts from being
primarily responsible for obligations made and issued by
themselves.

The privilege of recalling the loan, however, was usually
reserved by aU classes of lenders in those days. Frederick
the Great and his advisers did not disturb this custom for
fear of driving the investing public away from the debentures
of the landschafts, and for the further reason that they

THE OTHEE GEEMAIsT LANDSCHAFTS 81

thought that the subsidies and the imexpended portion of the
contributions which members paid for the upkeep of the
landschaft would eventually form a sufficient fund to meet
the usual number of demands and protect its guaranty. But
such was not the case. The demands were heavy whenever
the financial situation of the country at large was bad, and
the stay laws which Frederick the Great's successor, Frederick
William III, decreed for private debtors during and after
the Napoleonic wars, had to be extended to the landschafts.
Between 1813 and 1814 a certain period of grace was granted
for all the associations. For the province of Pomerania it
lasted imtil 1880. In East Prussia and West Prussia, which
had been scourged the most by war, the stay laws were re-
enacted in 1821, and holders of debentures were enjoined
against calling in their loans until December 21, 1823. Fur-
ther moratoria were decreed and the afEairs of the old asso-
ciations and of the four new ones which had been formed
did not resume their regular course until September 13, 1832.

During this time debentures were redeemed only in
amounts justified by the available cash on hand. The contri-
butions of members of the landschafts were increased, but
many debenture holders had to wait because the enemies had
confiscated the entire funds of some of the associations. These
stay laws saved the landschafts from the only necessity they
ever faced of putting the collective liability of members to
the test. It cannot be conjectured what might have hap-
pened if these measures had not been taken.

It must be remembered, however, that at intervals during
this period the state itself was forced to suspend payments
and that its credit was always worse than that of the land-
schafts. During the Napoleonic wars the debentures of the
Silesian landschaft fell to 84, then to 70 and 50, but those of
the Prussian Government sank to 20. In 1839 they again
dropped below par when the interest rate was arbitrarily re-
duced by royal decree from four to three and one-half per cent,
but they soon recovered. The revolution of February, 1848,
seriously affected all values, and during that year the deben-
tures of the landschafts of Silesia and Pomerania were

82 EUEAL CREDITS

■quoted at 93, of West Prussia at 83, and of East Prussia
at 96. But at the same time Prussian government bonds
were selling at 69, the stock of the Bank of Prussia at 63,
and the stock of the government railroads from 90 down to 30.
Again, in 1850, while the 3.5 per cent government bonds of
Prussia were at 86.5, those of the Silesian landschaft were
■quoted at 90 to 93.75, those of the landschaft of Posen at 103,
and of the landschaft of Mechlenburg at 103.

But the bitter experiences suffered by the landschafts
during the Napoleonic wars and other disturbances showed
"the dangerous possibilities of the error of allowing holders of
debentures the right of demanding repayment of the principal.
Its elimination, however, was accomplished gradually. After
the country had recovered from the damage wrought by the
wars and had enjoyed a few years of peace and plenty, land
values steadied agaia and money began to be f oimd in abun-
dance for mortgage loans on reasonable terms. The land-
schafts were the first to enjoy the effects of the improved
condition and they decided to take advantage of it for the
purpose of reducing the rate of interest on their debentures.

This rate was four per cent, the same prescribed by law in
the latter part of the preceding century, and the debentures
were consequently selling at a premium correspondiug with
"the lower market rates for money, which were between 3 and
4 per cent for good investments. Edicts permitting a reduc-
tion of interest were published for East Prussia and Pome-
rania in 1837, for West Prussia in 1838, and for Silesia in
1839. These edicts further declared that debentures which
could be recalled by holders should no longer be issued. The
correction of this defect, which had jeopardized their exist-
ence from the beginning, was the first innovation made in
"the old landschafts.

The constitutions and by-laws were generally overhauled
a few years afterward, and so great was the effect of the
various amendments that the literature of the landschafts
refers to those times as the epoch of the "conversion." All
outstanding debentures were called in. The holders were
compelled to accept their repayment at par, or their conver-

THE OTHEE GEEMAN LANDSCHAFTS 83

sion to 314 per cent interest after 1840 for denominations of
$24 or over, and to 3% per cent interest for lower denomina-
tions.

As the debentures were then quoted at a premium of
about seven per cent, many complaints were raised against the
execution of this drastic measure, but the conversion was
made with comparatively little trouble. The Silesian land-
sehaft did not have to use a loan which it had taken the pre-
caution to obtain from the Berlin bankers. Out of $9,000,-
000 of its debentures in circulation, only $6,240 were pre-
sented for payment, and $120,000 were converted as a matter
of course upon the failure of the holders to make known
their wishes. After the reduction of the interest the deben-
tures were soon quoted again above par, and this was the case
with the other landschafts also.

Inasmuch as the measures for converting the debentures
from four per cent to a lower rate did not provide at the same
time for a corresponding reduction in the interest paid by
the members on their loans, it was apparent that unless some-
thing were done big funds would accumulate for which the
landschafts would have no use, since the associations were not
conducted for profit. The first proposal was to reduce the
interest on loans but the idea of utilizing the difference to
create a sinking fund for the retirement of the debentures
finally prevailed.

The suggesting cause of this idea was imdoubtedly the
Provincial Credit Association for the Grand Duchy of Posen,
Prussia. This peculiar institution was orgtoized on October
15, 1821, with the object of issuing just one series of deben-
tures for a group of noble landowners, and it proposed to go
out of existence when this bonded debt was paid off. Bor-
rowers contributed three-fourths of one per cent in addition
to their annual interest and fees, and it was calculated that
the funds accumulated thereby would suffice to retire the
debentures within 41 years.

This association had avoided the error of conceding to
debenture holders the privilege of recalling the principal on
notice. It reserved this right to itself and exercised it by

84 EUEAL CEEDITS

withdrawing- by lot each year as many debentures as it was
able to repay from payments received from borrowing mem-
bers. Drawings were made, however, only when the deben-
tures were quoted at a premium. It is needless to say that
when the price was under par, the association bought deben-
tures in the open market. A bonus of three per cent was
given on all debentures drawn by lot. The purpose of the
founders in creating a sinking fund by contributions of
members seems to have been not so much to wipe out the
debt as to maintain the face value of the debentures by being
able always to buy them back, and also to compensate bor-
rowers whenever they happened to be compelled to repay their
loans with debentures quoted above par.

The Posen association issued another series of debentures
in 1840 to be redeemed by a 1.5 per cent annual contribution
for 35 years. Thereafter it closed its doors against further
applications for loans, and was dissolved in 1877 after having
faithfully met all its obligations, exactly as was planned in its
original charter. This temporary institution was thus the
first on the continent of Europe to practice the extinction of
debts by compulsory periodical payments.

The old landschafts upon adopting the methods of the
Posen association aU issued new series of debentures desig-
nated by a letter in the alphabet to distinguish them from
the old issues. These new debentures did not contain the
names of mortgagors or descriptions of properties and were not
issued against and secured by any special mortgages, as was
the case with the old bonds. They were secured by the mass
of underlying mortgages and the principal was repaid out of
the amortization fund. As the association began to collect
contributions to this fund from the members and to redeem
debentures therefrom, they assumed, at least in the eyes of the
investing public, the primary and a direct responsibility, and
thus a second innovation was introduced into the credit sys-
tem of the old landschafts. This occurred in the different
landschafts at different dates. The issuance of debentures with
the mortgaged estates described therein ceased in Silesia for
plebeian borrowers in 1849, and for noble estates in 1872;

THE OTHER GERMAN LANDSCHAFTS 85

in Pomerania in 1857; in Brandenburg in 1858; in West
Prussia in 1864; and in East Prussia in 1866.

Since the practice of making loans in debentures was
continued, the redemption of the debentures out of the funds
paid by borrowers operated also for the extinction of their
debts, and brought about the third and greatest innovation in
the old landschafts, the amortization of the loans by an-
nuities.

The landschafts do not all use exactly the same method of
amortization. The differences lie mainly in the amount of
the annual contribution and the period during which it must
be paid, the way the sinking fund thus created is kept, and
the rights of the members therein. The methods, however,
are so much alike as all to fall within the class known as the
"landschaf t plan," to distinguish them from the entirely dif-
ferent methods used by other land-credit institutions.

Generally speaking, a borrower in a landschaft pays what
is called an annuity in half-yearly instalments, which remains
the same as long as he is indebted to the association. This
annuity is divided into three portions. The first portion is
used for paying the interest on the debentures by which the
money for making the loan was obtained; the second is set
aside for the cost of business; and the third portion, usually
one-fourth or one-half of one per cent, is placed in the sinking
fund, together with all voluntary payments which the bor-
rower may have made in advance on his loan. This fund is
invested in debentures redeemed or purchased on the bourse.
The borrower is given a share in this sinking fund propor-
tioned to the amount of his loan, and when his credits and his
portion of the profits equal his loan, it is considered paid and
his mortgage is annulled and released of record.

Although no provision is made for the extinction of the
loan at the end of a fixed period, a borrower in a landschaft
knows that if he faithfully fulfills his engagements, that
portion of his annuity which represents payments on the prin-
cipal will be carefully invested to his account at compound
interest, and will gradually relieve his property from debt in
a cheaper and more convenient way than by any other system.

86 EUEAL CEEDITS

The release also wiU come sooner than in a company which
has to pay dividends to stockholders, because a borrower in
a landsehaft, besides receiving aU the profits of his money
safely invested, enjoys his share in the savings and gains of
an association whose chief objects are to eliminate expenses
and commissions and to extend credit to its members on the
lowest and easiest terms.

The changes in the form and effect of the debenture and
the introduction of the amortization idea were followed by
another reform which extended the benefits of the landsehaft
to practically all landed farmers, noble and plebeian. But
this fourth innovation was agitated and incepted before any
of the others. In 1807 the King of Prussia decreed that the
common people should have the right to own manorial estates,
which up to that time could be owned only by the nobility.
The landsehaft of East Prussia was the first to amend its
charter and by-laws to conform with the spirit of this decree.
The others made similar amendments. This, however, was
only a short step forward, because the estates were large and
the high figure prescribed in the charters of the landschafts
as the minimum value for membership was not reduced. The
small holder was still excluded. Hence about the middle of
the century, after the multitudes of serfs had been completely
freed from menial servitude and given full rights of citizen-
ship, it became evident that the minimum for credit must be
reduced if the landschafts were to render to agriculture ser-
vices commensurate with its needs. This was the fifth and
last innovation.

The desired reforms were accomplished in various ways.
The East Prussian landsehaft lowered the minimum value of
farm required for membership to 500 marks. The other old
landschafts preserved in the main their aristocratic character,
but the SUesian institution opened a bureau in 1849 for
making loans on small rural holdings ; while in West Prussia
in 1861, in Kiir and Neumark in 1869, and in Pomerania in
1871, subsidiary associations to make loans on farm lands
yielding an annual revenue as low as $24 were formed by the
landschafts and operated under their management. More-

THE OTHEE GEEMAN" LANDSCHAFTS 87

over, new landschafts entirely separate and distinct from the
old institutions were organized in Prussia and in nearly
all the other German states.

Although constructed along the same general lines, uni-
formity of tjrpe does not appear among the new landschafts,
while they difier in important respects from the old land-
schafts. Noble lineage and seignorial tenure have been dis-
carded as qualifications for membership. Every deserving
farmer resident within the area of operation may join the
association if he owns a piece of agriciiltural land of the size
or value prescribed in the by-laws, but no one is obliged to
become a member. Liability for the obligations of the asso-
ciation runs only against those who have borrowed. The
extent of this liability varies. In some associations it covers
all the real estate which members may possess; in others it
extends only to the mortgaged property, no other properties
owned by the members being subject to it. The mutual lia-
bility also is frequently limited to a percentage of the loans
of the members. Six of the new landschafts have done away
with mutual liability altogether. Each member is held to
pay only his own loan and is not bound to stand as guaranty
for those of the others. The losses in these associations are
met out of a guaranty fund created by extra contributions or
entrance fees paid by their members. In all the new asso-
ciations the farmer must sign when his loan is made a mem-
bership agreement binding him to obey the rules and regu-
lations of the association. He ceases to be a member upon
repayment of his loan but his liability continues for a certain
length of time thereafter.

Two of the new institutions are similar to the cooperative
associations for personal credit which will be described later.
They impose unlimited liability on their members, but this lia-
bility is protected by the capital stock divided into shares to
which members must subscribe upon joining. The capital
stock is variable in each association and shares are issued only
as borrowers are admitted to membership. They may be paid
in full at the time of subscription or in successive instal-
ments. Upon withdrawal from the association, the amount

88 EUEAL CEEDITS

of his shares is returned to the retiring member upon sur-
render of the stock certificates. These are adaptations of the
building and loan associations in the United States.

The debentures of the new as well as the old landschafts
are all of the new style, that is, they do not contain the name
of any specially described property but are worded to show
that they rest upon reserves and a mass of underlying mort-
gages. The methods of issuance are not identical. Most of
the associations deliver the debentures to the borrowers, but
some make the loans in cash, raising the money therefor by
selliag the debentures on the bourse. If they are sold below
par, the association charges the borrower a little higher in-
terest rate in order to create a fund to amortize the difference
between the amount of the loan and the sum actually re-
ceived. Some of the associations, in lieu of specifying the
rate of interest on the loans in advance, fix only the size of
the annuity, generally about 5 per cent. The association then
disposes of the debentures on the best possible terms, charges
the borrower the rate of interest computed for the transaction,
and deposits the difference between that and the annuity in
the sinking fund. In this case the borrower does not Imow
in advance what will be the exact rate of interest he will be
required to pay or what portion of his annual dues will be
used for amortization. Although this uncertain method could
not be employed by a company which has to distribute its
gains in dividends, it occasions no inconvenience to the land-
schaft whose sole purpose is the collective good of its members.

The need or advantage of having a central organization
for standardizing their business methods and strengthening
their credit by mutual assistance became apparent as soon as
the landschafts had spread over Germany. Between 1870
and 1875 the market price of the debentures of several of
the associations was low and unstable. Inasmuch as their
business methods were practically the same, and the guaran-
ties offered were as good as those of others whose debentures
were selling at a satisfactory figure, it was evident that the
difference was due to distance from the money centers and

THE OTHEE GEEMAN" LANDSCHAFTS 89

adverse local conditions. Although such local troubles of a
serious nature have been infrequent with the landschafts,
they are nevertheless inevitably recurrent, and render an iso-
lated institution, depending on the financial resources of the
affected area, absolutely helpless to afford the needed relief.

The efforts to bring a central organization into existence
have been only partially successful. Prussia alone has such
an institution. In devising plans for its formation Prussia
not only opened up the financial channels which aU converge
at Berlin, but utilized the principle of cooperation, and en-
couraged the landschafts themselves to unite into a large
association with power to issue debentures upon their com-
bined guaranty, and thus to create a security so safe and
sound that it woxild have all Europe for its market. This
idea was the outcome of the report of an investigating com-
mittee appointed by the Minister of Agriculture to make
recommendations for the improvement of farm-credit facili-
ties. The committee did not submit any definite proposal for
a central institution, but it voted in favor of centralization as
a means of effecting the needed improvement, and a few
years later the landschafts of the eastern provinces of Prussia
took the necessary steps to bring about its realization.

The Central Landschaft of Prussia was organized in
1873. Eight landschafts and one communal land-credit in-
stitution joined, of which all but one stiU adhere. The
others declined to join for fear of losing their independence,
and because they thought that the less flourishing associa-
tions would profit to the disadvantage of the more prosperous
ones. There has been no need for others to join, because the
debentures of each landschaft have found such a ready sale
within its own province that it has not been forced to seek out-
side assistance. Hence the business of the central association
has not grown as much as was expected, but the fact that it
exists and is available in times of distress has undoubtedly
strengthened public confidence in the debentures of the entire
Prussian landschaft system.

The organization of this central association is simple and
allows the adhering members the fullest liberty of action

90 EUEAL CEEDITS

consistent with safety. It is not operated for profit. Al-
though possessed of the powers of a corporation, it has no
capital stock and pays no dividends. Its members must be
other associations or companies which lend on farm mort-
gages. All such concerns in Prussia are eligible to join.

Its administration, under the supervision of the provin-
cial Minister of the Interior, is conducted simply by a man-
aging board composed of the president of each of the adhering
associations. The president of the landschaft or the Rit-
terschaft of Kiir and Neumark is legally the president of the
central board, for the reason perhaps that the headquarters of
both are in Berlin. It convenes whenever necessary and at
least once a year. In the intervals the ordinary business
transactions are carried on by a stafE of employees.

Loans may be granted up to two-thirds the appraised
value of a farm, if permitted by the rules of the landschaft
of the territory in which it lies. They are made either in
debentures or cash as the central association may decide.
They are usually made in debentures if ak)ve par, the pre-
mium being placed in the reserve fund ; if the debentures are
below par, the borrower will be given a cash loan for the dif-
ference. An extra one-half of one per cent is required on the
cash loan until it is paid. Otherwise, the appraisals and
contributions for the gradual extinction of the debenture
debt are made according to the rules of the landschaft to
which the borrower belongs.

The debentures of the central association are issued in
denominations of $2,400, $1,200, $720, $360, $144, $120, $72,
$48, $36 and $24, of four per cent, three and one-half per cent
and three per cent, with ten interest coupons attached and a
talon entitling the holder to a fresh series of ten coupons;
other denominations are allowed. The debentures are printed
in several languages. When a loan is paid debentures to a
corresponding amount must be retired; hence no debentures
are ever in circulation in excess of the loans. No limit is
prescribed for the total of business that may be done.

The central association does not advance money to the
other landschafts or companies, nor does it use them as its

THE OTHEE GEEMAN LANDSCHAFTS 91

agents or in any other way for the disposal of its debentures.
It carries on business like an ordinary landschaft. Its pur-
pose is simply to create a security that will enable members
of its adhering institutions to obtain credit at a fair figure
during hard times.

If a farmer finds that the debentures of the local land-
schaft of which he is a member are not selling at a good price,
he has the privilege of requesting that his loan be made in
debentures of the central landschaft. His land is appraised
by and mortgaged to his local landschaft, which issues its
own debentures in the ordinary way. Its president (who is
also a member of the central board) delivers these papers
with the other necessary documents to the central associa-
tion, which exchanges them for central debentures. Thus by
this pledge the farmer gets a. bond backed by the collective
liability of the thousands of other farmers belonging to the
landschafts adhering to the central association, and very nat-
urally the rate of interest is as low as it is possible to obtain
on borrowed money at that time.

The central landschaft has no large funds besides the sink-
ing fund accumulated from the contributions made for the
retirement of its debentures, and it does not have muel^need
of any. The few gains it makes from premiums and un-
claimed debentures or coupons are safely invested in land-
schaft debentures or government bonds and form a reserve;
the profits thereon revert to the borrowers if the fund becomes
needlessly large. The association is run at comparatively lit-
tle expense, lio salaries are paid except for clerical services.
The iuterest on its loans is collected by the various land-
schafts, and they are obligated to make immediate payment
out of their own funds in case of default of any of the bor-
rowers.

CHAPTER X

GERMAN PUBLIC LAND-CREDIT INSTITUTIONS

Land-credit Institutions Other Than Landsehafts. — ^Necessity for
Their Creation. — Three Classes. — ^Land-credit Banks. — Original
Purpose to Commute Feudal Servitudes. — ^Present Purpose to
Supply Cheap Money on Land Security. — Operation. — ^Land-im-
provement Annuity Banks. — ^Purpose to Finance Land-improve-
ment Projects. — Operation. — Settlement Commission. — ^Purpose to
Create Small Homesteads. — History. — Operation. — State Invalid-
ity and Old-age Insurance Institutions.

The landsehafts are usually reckoned among public
credit institutions; but while the old associations which are
governed by crown appointees have a public character, some
of the new ones are purely private associations. As they
now stand, they cannot all be grouped in one category.

The public land-credit institutions properly so called in
Germany were created to supply the deficiencies in the land-
sehafts, and to finance operations which they were not author-
ized to assist. The landsehafts, like their aristocratic mem-
bers, adjusted themselves with bad grace to the march of
events. On the breaking up of feudalism they gave very
little help to the plebeian landovmers and practically none at
all to the liberated serfs. In 1887 the German ministry of
agriculture reported that the landsehafts did not reach the
one-team farmer, that is, the farmer of 18 to 34 or even 61
acres. In 1891 the French writer Louis Durand made a simi-
lar statement. In 1895 Sir Frederick A. Nicholson, after an
exhaustive investigation in Germany, declared that they had
failed to assist the majority of small farmers. Hence the
service which the landsehafts are now doing this class began
within the last 15 or 20 years.

Again, when lands had to be reclaimed and the area of

92

PUBLIC LAND-CEEDIT INSTITUTIONS 93

productivity enlarged to meet the needs of the rapidly grow-
ing population, the landschafts were of no service, since they
could give credit only on lands that were already improved or
capable of yielding an immediate revenue. Private capital
was not available for any of these objects because lenders
during that period found safer and higher profits for their
money in enterprises of industry and commerce in the cities.
The state, therefore, intervened from a national necessity,
and in organizing land credit for the general purposes of agri-
culture, granted a greater degree of assistance than was avail-
able to the nobility in the landschafts. With two exceptions
all existing land-credit institutions whose organization dates
back to 1863 were aided by the state, while many others
of later origin were brought into existence in the same
way.

Exclusive of the landschafts, there are now three classes
of public land-credit institutions in Germany. Institutions
of the first class aim to obtain cheap money for all citizens
who have good lands to ofiEer as security ; those of the second
class finance land improvement projects; and those of the
third class have for object the creation of homesteads for
small holders.

All these public concerns are non-profit-making. They
grant long-term reducible mortgage loans and issue deben-
tures to raise the money needed for carrying on their opera-
tions. These debentures have no fixed maturity, are drawn
in small denominations payable to bearer, and are redeemable
at the will of the makers out of the annuities received from
the borrowers. Their final security is the guaranty of the
Government, and they may be used as investments for funds
of savings banks, insurance companies, and aU kinds of trus-
tees. The concerns are exempt from stamp taxes and regis-
tration fees, enjoy free services of state oflBcials, and possess
other special privileges in the way of summary proceedings
to enforce the collection of their claims. They are so widely
distributed that almost every German farmer is able to dis-
pose of his mortgage at a government agency and obtain a
loan up to one-half or two-thirds the value of his land

94 ETJEAL CEEDITS

without eommissions or incidental expenses and at the lowest
interest rate.

In the first class are the land-credit banks established for
a whole state, province, or district within a province. These
now number 16. The first provincial land-credit bank with a
state guaranty in Germany was the Herzogliche Leichkasse
iu Brunswick, founded in 1765 ; the first bank of that nature
with a communal guaranty was founded in Cassel in 1832;
the first bank with a provincial guaranty is the Hanoverian
Land-credit Institute, founded in 1840; the latest is the one
founded in 1903 in the Grand Duchy of Hesse. The larger
number are joint-stock concerns, the shares of which are held
by the provinces, communes, and public savings banks of their
localities. They are managed by committees appointed by
stockholders and are under state control.

The original purpose of these banks was the lending of
money to proprietors to enable them to commute into mort-
gage loans the feudal servitudes which burdened their lands.
After this service was no longer required, the banks took up
the general business of granting credit to communes and on
mortgage to individuals for any object. Three of the banks
lend on lands situated anywhere in the Empire; the rest
confine their operations to their own states. They aUhave
been serviceable, especially to owners of small or medium-
sized parcels, but only the bank in Hanover restricts its busi-
ness to farm loans. These banks, however, do not conform
to the pure type of land-credit institution, because they accept
deposits, make personal loans, and accommodate churches,
cooperative societies, and public corporations with or without
mortgages. One of them is authorized to issue notes, while
others have extensive banking powers. Moreover they differ
so much one from another in function and organization that
they can be denominated as belonging to the same class only
because of their common connection with the state.

The loans of the public land-credit banks are usually made
in cash, not debentures, but the mortgage and communal loans
may be repaid in debentures by the borrowers. The value of
land is generally determiued by taking the net revenue as

PUBLIC LAND-CREDIT INSTITUTIONS 95

fixed for public taxes and multiplying it by 25 or some such
figure, and then fixing two-thirds of the result as the maxi-
mum for a loan. Six of the banks lend sums as small as $75 ;
the minimum loan of another is $10.50. The rate of interest
ranges from three and five-tenths to four per cent (or the rate
on the debentures), to which is added one-fourth to one-half
of one per cent for cost of business, and one-half to three-
fourths of one per cent for amortization, thus making the
largest annuity five and seventy-five hundredths per cent.

All gains of the banks are used for reducing the loans if
not devoted to some public purpose. Public officials pass
upon the applications for loans, and collect the interest and
other payments. A sympathetic attitude is assumed toward
delinquents. Eenewals and extensions are readily granted
upon good cause shown, while pajTnents in advance are always
allowed. The retirement of the debentures is effected by
drawing lots, if they are quoted above par : otherwise they are
obtained by purchase on the bourse. The largest denomina-
tion is $7,500 and smallest $50. In 1909 the average interest
rate on debentures in circulation was between 3.52 and 3.66
per cent.

The second class of state-aided institutions comprises
five land-improvement annuity banks in Prussia, one similar
institution in each of four other German provinces, and eleven
provincial-aid banks. The latter are simply governmental
departments. They are not important sources of credit for
individual landowners. With two exceptions they make
loans principally to municipalities, public corporations and
cooperative societies. As yet their operations are insignifi-
cant.

The land-improvement annuity banks are organized for
the administration of appropriations from public funds, and
are empowered also to issue guaranteed debentures to raise
any other money required for their operations. The Prussian
law of 1879 illustrates the objects of all the institutions. It
authorizes the creation of these banks by one or more com-
munal districts, for the purpose of granting loans for im-
proving or reclaiming agricultural lands by drainage or irri-

96 EUEAL CEEDITS

gation, for planting forests, building roads, diking rivers,
and opening up and maintaining watercourses.

Each bank is managed by a directorate of a semi-public
character and is supervised by a bureau or department of the
Government. A plan of the proposed project, with an esti-
mate of the cost, the time required for completion, and the
probable value that will be added to the land, must accom-
pany every application for a loan. Agricultural experts are
always appointed on the commission which investigates this
application, and an appeal lies in all cases from the directorate
to the Government.

Loans are allowed up to a certain multiple of the net reve-
nue of the land as calculated for taxes. The limit in Prussia
is one-half the value, unless the increase from the improve-
ment is taken into consideration, when three-fourths of the
value may be allowed. The loans may be made in cash or
with debentures. The debentures issued by each bank cannot
exceed in amount the loans granted, and both must bear the
same interest rate. If a bank makes its loans in cash, it may
issue and sell a corresponding number of debentures.

The rate of interest charged borrowers must not exceed
4.5 per cent; to this must be added at least one-half of one
per cent for the sinking fund, with a commission not to exceed
one-fifth of one per cent for the cost of business. On loans
for drainage works, four per cent per year may be required
for amortization. But the annuities must be so calculated
that enough will be left out of the annual return of the land
for the living expenses of the ovmer. The money lent is
usually advanced by instalment upon favorable report of
progress made in the work; thus the loan is always used for
the purpose for which it was granted.

A mortgage or a first lien of some other kind must be given
on farm or forest lands as security for each loan. A special
proceeding is allowed for establishing a loan used for making
improvements as a first lien on the land, regardless of prior
encumbrances of third parties.

Loans may be made to individuals, to groups of persons,
and to incorporated bodies and cooperative societies. The

PUBLIC LAND-CEEDIT INSTITUTIONS 97

debentures are drawn in denominations of $50 down to $2,
and bear ten 4.5 per cent interest coupons and a certificate en-
titling the holder to another set of coupons. Every six months
as many debentures are retired as may be redeemed out of
the annuities received from the borrowers during that period.

All profits must be put into the reserve until it equals
five per cent of the outstanding debentures. Any excess not
needed for expenses is turned over to the official bodies which
siand responsible for the debentures.

The last of the three classes of state-aided institutions
consists of a settlement commission, eight general commis-
sions, and seven rent charge banks, all in Prussia. The set-
tlement commission has received $150,000,000 from the state.
Its object is to colonize German farmers among the Poles in
West Prussia and Posen, and it carries on this work through
six hundred officers.

The general commissions are similar organizations estab-
lished by the state for creating small holdings. In further-
ance of this object they have been given judicial powers to
decide certain claims and rights to properties, and they are
authorized to acquire and reforest moors and waste lands,
consolidate separate tracts belonging to the same person, carry
out land-improvement projects, and form cooperative societies
for irrigation and drainage enterprises. The settlement com-
mission transacts its own affairs, but the general commissions
use the rent charge banks as their financial agents.

The rent charge banks were originally devised for assist-
ing the emancipated serfs to obtain clear titles to the lands
they occupied, and most of them went out of existence, as it
was intended they should, when that object was accomplished.
The law of 1807 which put an end to villeinage and enabled
these agricultural slaves for the first time to go and come
at will and buy and sell as free citizens, did not remove the
ancient restrictions regarding the conveyance of land nor
change the rights possessed by the noble landlords to a portion
of the crops and certain field services from tenants who cared
to remain. Hence another law was enacted in 1811 which
gave the title to the hereditary tenants. The landlord's

98 EUEAL CREDITS

claims were commuted to one-third the income of the land
and the new owners were allowed to make mortgages to that
extent.

This commutation was made in several ways. If the
land was more than 35 acres in area, one-third of it was left
to the landlord and the other two-thirds was given to the
tenant outright: if under that area, it was subjected to a
perpetual corn or money rent. Later in 1811 these rent
charges were made redeemable by a capital payment, and
transfers were permitted so that the land might pass into
the hands of those best fitted to cultivate it. This legisla-
tion regarding commutation and redemption of lands from
feudal charges was mostly of a permissive sort, and since the
farmers had neither money nor credit, it had little effect in
bringing about the objects dosired. Furthermore, it was lim-
ited by the laws of 1816 to a certain class of tenants, and later
on by the size of the farm, none under 18 acres being consid-
ered.

In 1845, however, all peasant farms, no matter how
small, were brought within its scope, the rent charges were
declared commutable at 25 years' purchase, and societies
were formed for creating sinking funds to amortize the debt.
Then, after the social disturbances of 1848, came the law of
March 2, 1850, which did away with certain manorial rights
without compensation, ordered the commutation of other
feudal rights and services into fixed money rents, arbitrarily
established the value of the land at 18 times the annual rent
for a cash payment or at 20 times for a deferred payment,
and obliged the nobles to accept that payment either in lump
or in annuities calculated to extinguish the capital within 41
to 56 years. Inasmuch as this was a forcible measure politi-
cally inspired and urged by a national necessity, the Govern-
ment naturally created the machinery to carry it into effect.
The rent charge banks were the result.

These banks made no loans. They had nothing to do with
appraising property or determining the extent of credit. A
general commission or government land office commuted and
settled the claim, which was thereupon examined by a special

PUBLIC LAISTD-CEEDIT INSTITUTIONS 99

commissioner, and then, if the appellate commission did not
disturb the decision, the rent charge bank was ordered to
issue debentures up to 30 times the amount of the award.
It delivered these debentures to the peasant, debiting him
with their value on the security of his land; the credit so
accorded formed a first lien and followed the land and not
the person. The interest coupons were legal tender at gov-
ernment ofBces. Annuities were collected by the public tax
gatherers. The banks received the annuities when turned in,
and were required to bring the summary proceedings allowed
agaiQst the debtor in case of default.

The business of the rent charge banks reached its highest
point about 1859, and as it fell off the banks were dissolved.
Prussia's were dissolved along with the rest, but they were
reopened in 1891, to help carry out the plans of that king-
dom for dividing up large estates for allotment among the
peasantry. Seven rent charge banks stiU exist in Prussia
and operate in connection with the general commissions.
Their functions now are to acquire in behalf of the com-
missions lands to be split up into small holdings, to make
loans to incorporated or cooperative bodies which desire to
acquire lands for this purpose, and to lend to individuals
directly for buying or improving small homesteads.

The commissions have fixed various sizes for such home-
steads. With one the minimum is 2.5 and the maximum 75
acres ; with another the limits are 5 and 45 acres ; while some
allow from 7.5 up to 175 acres. The purchaser of a home-
stead gives in return a mortgage against which the bank issues
three per cent debentures. The loan contract provides that
he shall pay the interest on the debentures and a certain per-
centage of the principal each year. If the annuity thus
formed is 4.5 per cent, the debt wiU become extinguished in
56 years and one month. If it is four per cent, it will run for
60 years and six months. No advance payments axe allowed
imtil ten years after the date of the loan.

The state invalidity and old-age insurance institutions
created by law in 1889 are public bodies, so the loans made
by them may be considered as coming from the state. There

100 EUEAL CEEDITS

are in Germany 31 of these institutions, besides ten offices for
collecting premiums which have funds of their own, drawn
from miners, seafaring persons, and railroad employees. The
assets of these institutions may be legally invested in mort-
gages and real-estate securities, but they rarely make loans
directly to individuals. Their credit is extended to or through
cooperative societies, or communal or other semi-public and
non-profit-making corporations. The rate of interest ranges
from 3 to 3.75 per cent.

CHAPTEE XI

PRIVATE SOUECES OF LAND CREDIT IN GERMANY

Long-term Reducible Loans Made by Public Credit Institutions. —
Short-term Loans Represented by Second Mortgages. — Savings
Banks. — Their Operation. — Mortgage Loans. — ^Private Insurance
Institutions. — ^Real-estate Loans Not on Farm Lands. — Co-
operative Credit Societies. — ^Land-credit Banks. — History. — Bonds.
— Official Supervision. — Operation. — Bavarian Mortgage and Ex-
change Bank of Munich. — ^Prussian Central Land-credit Com-
pany.— History and Operation.

Neaelt all long-term reducible loans in Germany are
made by the landschafts and public, or semi-public, credit in-
stitutions. The reason is easily explained. Such loans, repay-
able by annuities running through periods of many years,
cannot be made out of funds subject to recall. If the money
is raised by the sale of debentures, they must have no fixed
maturity if amortization of the loans is planned. But instru-
ments of this kind, depriving the holders of the right of de-
manding the principal of their investments, cannot be sold
in quantities unless guaranteed by the government or a con-
cern connected with it ; at least, this has proved to be the case
in Europe. The loans from private sources are generally for
short term, that is, under ten years, and are repayable in lump
or in a few instalments.

A very great part of the credit accorded by individuals on
real estate in Germany is represented by second mortgages.
The volume of this business is large, because the land-credit
institutions, public and private, are so conservative in their
appraisals that the one-half, three-fifths or two-thirds of the
land's value, to which the amount of their loans is restricted,
leaves a wide margin for credit upon which their borrowers

101

102 ETJEAL CREDITS

realize from other lenders at high interest rates. With a few
exceptions, however, all loans made by incorporated bodies
are secured by first mortgages.

The private institutions which are the heaviest buyers of
real-estate mortgages in Germany are the savings banks, the
insurance companies, and the joint stock land-credit banks.
These concerns make loans ptirely for profit; in this respect
they differ from the landschafts and public institutions, aU
of which grant credit without thought of gain. The interest
rates of the private institutions, however, are very little
higher than those of the latter. Apart from this slight dif-
ference, the chief advantage which the landschafts and public
institutions can offer over the others is their ability to grant
long-term, amortizable loans.

The savings banks are the greatest source of land credit
for the farmers of small and medium-sized estates in Ger-
many. Most of the German savings baaks are public cor-
porations, founded, managed, supervised or guaranteed by a
province, district, commune or municipality. They are non-
profit-making, so they are exempt from taxation. Surplus
earnings go into reserves or are devoted to some philanthropic
object. Nevertheless, they carry on their business along very
practical lines. Their maia purpose is to encourage thrift,
so they aim to give depositors as much interest on their
money as can be obtained from safe investments.

As far back as 1831 the formation of savings banks in
rural districts began; there are now 368 rural savings banks.
In 1910 there were, including both urban and rural institu-
tions, 2,844 public savings banks with 7,404 branches, and
228 private savings banks with 294 branches, or a savings
bank in nearly every farming community in the Empire.
At least 20 per cent of their assets is invested in farm mort-
gages.

One-fourth of "the rural mortgages of the savings banks
in Prussia, and perhaps a similar proportion in many other
German states, are reducible loans. They were made in com-
pliance with the urgent request of the Government, which
began in 1886 to call upon the savings banks to help to relieve

PRIVATE SOTJECES OP LAND CEEDIT 103

the farmers from their biirdensome mortgage indebtedness.
The method of amortization used, however, is misatisfactory.
Its plan has been described in a previous chapter. The chief
advantage in it is that the banks usually surrender the right
to recall such reducible loans.

All the other mortgage loans of the savings banks are,
after the first year, subject to recall on three or six months'
notice, regardless of the length of the term specified in the
contract. The extent of the credit accorded on a piece of
property is usually one-half to two-thirds of its value, but
three-fourths and even five-sixths of the value is allowed on
reducible loans on small holdings, provided the contribution
to the sinking fund is one-half of one per cent or over of the
principal each year.

If the land has been valued by a landschaft or a public
credit institution, the savings banks will accept its valuation
and thus save the applicant the expense of an appraisal.
Loans as small as $500 are frequently granted. The interest
rate is never over five per cent. More than one half of the
loans bear interest at between five and four per cent, over one
third of them at four per cent, and many at only three per
cent.

The private insurance institutions of Germany are classi-
fied according to the business they carry on, as life, fire, trans-
portation, accident, hail, cattle, glass, burglary and reinsur-
ance. As to organization they are either mutual societies or
joint-stock companies. Over two-thirds of their enormous
funds is invested in real-estate mortgages, but only an insig-
nificant portion of them are farm loans.

Most of the loans granted by the private insurance com-
panies may be recalled on three or six months' notice. The
reducible loans cannot be recalled imtil after a term of years.
Amortization, however, is not practiced to any considerable
extent. No sum larger than $50,000 can be loaned on one
piece of property. If an applicant asks for a loan exceeding
$35,000, the property must be appraised by experts, usually
selected from a landschaft, public institution, or chamber of
agriculture in the locality. The legal limit to credit is three-

104 EUEAL CEEDITS

fifths the Taluation of the property. In some states two-thirds
of the value has been specified. The interest rate averages
about 4.4 per cent, to which must be added in the first year a
commission of at least one per cent, which most of the insur-
ance companies retain from the principal at the time of mak-
ing the loan.

The cooperative credit societies of the Eaiffeisen type in
Germany frequently take mortgages on their loans, but the
security is considered secondary to the personal obligation of
the borrower. The mortgage business is carried on not so
much as a matter of profitable investment for their funds as
for dotag a service for their members. A mortgage is some-
times placed on the property of a borrowing member simply
to protect it from other possible creditors. Again, if a mem-
ber wishes to buy out the rights of a co-heir or to acquire a
small farm, his society wiU invariably advance him the money
therefor on mortgage. Loans of this kind usually run for
ten years or longer and are repayable in instalments. Some
of the rural credit societies are authorized to issue deben-
tures. Professor Eobert MuUy von Oppenried estimated that
in 1908 the mortgage holdings of all the cooperative societies
belongiug to the Imperial Federation totaled $43,203,000.
They have probably increased since that year. In Bavaria
and some of the other German states statutes have been en-
acted which give cooperative societies the option of buying
all agricultural lands which are offered for sale, for subsequent
resale to members.

The joiat-stock companies known as land-credit banks
numbered 38 in 1912. The aggregate of their capital and
assets is enormous, but only one-sixth of their mortgage hold-
ings are farm loans, while ninety-one per cent of this one-
sixth is in the hands of one Prussian and seven Bavarian
banks.

The first private banking concern to accord land credit in
Germany was the Pomeranian Eitterschaft Bank, founded in
1824. The oldest land-credit bank with shares owned by pri-
vate individuals is the Bavarian Mortgage and Exchange
Bank of Munich. This was founded in 1834 for a discount.

PEIVATE SOUECES OF LAND CREDIT 105

deposit, savings, and fire- and life-insurance business. It was
authorized to issue notes up to four-tenths of its capital of
$4,280,000. These were to be legal tender, and three-fourths
of the issue had to be secured by mortgages. Hence the main
reason for taking mortgages was as a security for these notes.
The Bavarian Mortgage and Exchange Bank did not develop
into a regular land-credit hank until 1864. The first private
bank which had a special purpose from the start to extend
credit to landowners was organized at Dessau in 1846, but it
no longer continues as a land-credit institution. The oldest
existing bank founded especially for this purpose is the Credit
Institution for AU Germany, which was organized at Leip-
zig iu 1858, but has issued no debentures since 1899.

The mortgage operations of all these early banks were
handled in departments separate from their regular business.
Apart from the institutions mentioned, all existing companies
(down to 1912) were created since 1862. Twenty-seven of
them came into existence within 11 years after that date.
Eight were organized within two years between 1894 and
1896. One was founded in 1886.

All these banks were chartered by special administrative
or legislative acts or under provincial laws. There was no
national and general law for land-credit banks until 1899.
In that year the Imperial legislature enacted a law for form-
ing such banks and regulating their business. Only one bank
has been formed under this law, but all the 37 banks men-
tioned complied with its terms and have received licenses
under it.

This law has nothing to do with the landschafts or public
credit institutions. It relates only to private concerns which
issue bonds or debentures against mortgages. It forbids all
except joint-stock companies and limited partnerships from
issuing such bonds, and requires that license be obtained be-
fore beginning business. This license may be obtained from
a state imless loans are intended to be made in two or more
states, when it must be obtained from the Imperial authori-
ties. The chief object of the law is to make the bonds a stand-
ardized and safe investment. No special privileges have

106 EUEAL CEEDITS

been accorded to the banks. The provisions are regulatory
and restrictive.

The banks which may be authorized to issue bonds are
either pure or mixed land-credit concerns. The former limit
their business to loans on mortgage and the issuance of bonds,
the purchase and sale of real-estate securities, the granting of
loans to mimicipalities and public utility-corporations, the
purchase and sale of stocks and bonds on commission, the re-
ceipt of deposits not to exceed one-half of their paid-in capital,
and the collection of bank paper. The latter are similar to
American trust companies and are not favored by the Govern-
ment. They number eight, and perhaps no others will be
chartered.

Official supervision is prescribed but it is left to the states
in which the banks do business. It embraces all the dealings
of the bank, and is exercised through a state bureau and a
fiduciary agent appointed for each bank. The state may
demand a special report on any transaction and may send a
representative to the meetings of stockholders, directors, and
officers. The fiduciary agent has joint custody with the offi-
cers of the bank to which he is assigned of aU papers con-
nected with the bonds. He has absolute custody of the mort-
gages used as security for the bonds. He holds the mortgages
as a trustee, and must attach his signature to all bonds issued
to certify that they are sufficiently covered by mortgages de-
posited in his care. Consequently these bonds are not deben-
tures, because they are secured by specified mortgages. As
mortgages are paid off, others must be turned over to the
fiduciary agent.

Loans cannot be made abroad, nor in any state from
which the bank has not obtained a license. A loan may not
exceed three-fifths of the value of the mortgaged land, except
in the ease of farm loans, for which a state may allow two-
thirds of the value as the limit. No property may be taken
on mortgage which does not yield a steady income. One-half
of the total of farm loans made by a bank must be reducible
by an annual payment equal to at least one-fourth per cent of
the principal. Borrowers have the right to make advance

PEIVATE SOUECES OP LAND CEEDIT 107

payments but may agree to defer this right for ten years.
The instalment paid in advance on reducible loans must be
large enough to shorten the term of the contract by one or
more years, but if a borrower has paid up one-tenth of his
loan, he may demand that the bank arrange a new scheme
of amortization for him with a smaller annuity.

The bonds issued by a bank must always be covered by an
equal amount of mortgages bearing at least the same rate of
interest placed in the custody of the fiduciary agent. No
premiums or prizes are allowed upon the redemption of the
bonds. In the event of the dissolution of a bank, the bond-
holders have a claim on the mortgages registered for their
security against all other creditors. The total of bonds out-
standing must never exceed for a pure land-credit bank 15
times its paid-in share capital and a special reserve designed
to meet any deficit that might occur. Mixed banks cannot
issue bonds in excess of ten times this limit, but some which
had the right before the passage of the law to issue bonds to
20 times that Umit have been left in possession of it.

At the last calculation, 58.48 per cent of the bonds of the
German land-credit banks bore four per cent interest, 39.65
per cent of them 3.5 per cent, and the remainder 3.75 and 4.5
per cent. The interest on the mortgages was usually about
one-fourth of one per cent higher, plus costs and commissions.
Most of the banks have paid at least seven. per cent or more
in dividends regularly for many years.

The lack of success of the Grerman land-credit banks as
regards farm loans has been attributed to various causes. But
the trouble seems to be that only a few of them have the
necessary size and standing to enable them to sell bonds which
have no fixed time for maturity, and that in consequence of
their inability to raise money by such instruments, they are
not in a position to grant long-term, reducible loans of the
kind needed by agriculture. The proof of this lies in the
fact that the two big banks which have gained the confidence
of the investing public do a large farm-mortgage business,
nearly all of which is on the amortization plan and repre-
sented by debentures not recallable by the holders.

108 ETJEAL CEEDITS

These two concerns are the Bavarian Mortgage and Ex-
change Bank of Munich and the Prussian Central Land
Credit Company. The "King and Queen of Bavaria and high
state officials were charter members of the former when it
was founded in 1835. The latter, which was established in
1870 with the special object of aidiag agriculture, is a semi-
public institution. The Bavarian bank has paid over 12
per cent dividends since 1890; from 1907 to 1911 it paid 13
per cent. The Prussian bank is the more important of the
two, siace its operations extend over the entire Empire.

The Prussian Central Land Credit Company, a joiat-stoek
corporation, was the outcome of the efforts of Prince Bis-
marck to create a national mortgage institution for- the great
Empire that he was forming. He assisted three powerful
banking houses to obtaia a charter by a special law, and he
persuaded France, whom Germany was about to fight, to
order the then president of the Credit Fonder to serve on its
board of directors. The government bank of Prussia bought
a large block of stock so as to give the new concern prestige
and aid its first ventures. The headquarters of the company
are at Berlin and between three and four hundred agents are
scattered throughout the Empire. It is authorized to do busi-
ness anywhere in Germany but most of its loans are confined
to Prussia.

The bank is supervised by a special royal commissioner
imder the Prussian Ministry of Agriculture, Public Domains
and Forests. The stockholders at their general meeting elect
three auditors for three years to examine the loans and over-
see the management. They elect also 18 directors, among
whom they designate one president and three vice-presidents
to be appointed by the King. The directors, who must be
citizens of Prussia, serve for ten years. The bank operates
under the law of 1899, so far as it does not interfere with its
special privileges.

The original capital stock of the Prussian Central Land
Credit Company was $8,640,000; it has been increased to
$10,656,000. The company may issue mortgage loans up to
20 times its original stock and 15 times the increase. It may

PKIVATE SOURCES OF LAND CEEDIT 109

issue conummal bonds up to 34 times the original stock and
18 times the increase. The intention was to make the bank
distinctively a land-credit company, but it soon drifted from
this course and began to lend largely to municipalities and
public-utility corporations and to receive deposits. These
were powers granted by -its charter. Today, however, it has
become a land-credit institution second only to two in Ger-
many.

The bank has $165,200,412.72 in farm loans, $134,627,-
556.72 in loans on city properties, and $44,386,643.28 in loans
to municipalities. Against these loans it has bonds outstanding
to the total of $235,769,940. The smallest loan granted is
$250, and the largest $1,440,000. Two-thirds of the value
is the largest loan that will be granted on any piece of prop-
erty. The value may be ascertained by the experts of the
bank or by a landschaft or public credit institution, or the
bank may take 22.5 times the figure calculated by the public
officials as the annual income of the property for taxation,
provided the income does not surpass four or five per cent of
the capitalized value. t

Borrowers now pay 4.25 or 4.50 per cent interest. Besides,
they pay a commission composed of one per cent as a tax to
the state, one-half of one per cent to the bank for profit, and
one to one and one-fourth of one per cent to cover the cost of
busiaess. This amounts to somewhere between two and three
per cent over the interest rate for the first year. In addition
they pay a contribution to the sinking fund. Over two-thirds
of the farm mortgages are reducible by amortization. Most
pay one-half of one per cent; this extinguishes the loan in
561^ years. Others pay one per cent; this extinguishes the
loan in 44 years. Only first mortgages are taken. Foreclosures
rarely occur on farms. About one foreclosure for 146 loans:
is the average on city properties. A borrower cannot demand
that the bank take an advance payment until ten years after
the loan has been made ; thereafter he may repay his loan as
fast as he pleases.

Debentures may not be issued by the Prussian Central
Land Credit Company at a rate of interest lower than that

110 ETJRAL CEEDITS

of the mortgages by which they are secured. At present
bonds are drawing four per cent and are selling at 96. The
smallest denomination is $24 and the highest is $1,200. The
bonds are payable to bearer, without fixed time for maturity.
They are recallable at the will of the bank. Sometimes it
redeems them in series, and at other times by indiyidual num-
bers. The communal debentures may be used by trustees for
the investment of the funds in their care, but the mortgage
debentures have no privileges. No debentures may be issued
imless the royal commissioner certifies by his signature upon
them that they are sufficiently covered by underlying mort-
gages, equal iu amount and beariag at least the same rate of
interest of such mortgages.

The lowest dividend the bank has ever paid was seven per
cent, and this was for the first year. For 43 years the divi-
dends have averaged 8.75 per cent. In 1912 they were 9.5
per cent. The reserves are about 41 per cent of the capital.

CHAPTER XII

FRANCE: THE CE:1EDIT FONCIEB

Legislation. — History of Land-credit Movement. — Creation of the
Credit Foncier. — Privileges. — Organization. — Capital Stock. —
Purpose. — ^Two Sources of Funds. — ^Long-term Loans. — Syndieal
Associations. — ^Long-term Leases. — ^Amount of Loan. — Applica-
tion for Loan. — The Purge. — Terms and Penalties. — Use of De-
bentures.— ^Premiums. — Special Privileges.

The legislation on land credit in France comprises the \
law of 1852 on bond and mortgage institutions, the law of
1906 on long-term credit for agricultural cooperative associa-
tions, and the law of 1910 on long-term credit for small home-
steaders. This legislation furnishes striking instances of state
aid and special privilege.

In the beginning of the last century land-credit facilities
in France were in bad condition, mainly because of defective
laws regarding the registration of instruments affecting the
title or possession of land. A lender who took a mortgage
was never sure of recovering his claim in ease of foreclosure.
Consequently money was scarce and usury rife. The land was
so heavily encumbered with debts which had been accumu-
lating for generations that its returns were barely sufficient
to pay taxes and annual dues.

In 1826, when farmers and landowners were on the verge
of bankruptcy, Casimir Perier offered a prize for the best
answers to the following questions:

What are the defects and deficiencies in the rrench laws
relating to mortgage loans?

What are the obstacles which deter capital from seeking
such investments ?

Ill

112 EUEAL CEEDITS

What -would be the best plan to adopt for the purpose of
framing a complete project for settling these problems in a -way
which would be most in harmony with the needs of the public
treasury and building contractors and with the security re-
quired by lenders?

M. Perier's offer started a movement that lasted 26 years
and produced a volumiQous literature which is the best ever
written on land credit. Counting everything relating to the
eubject, according to Joaquin Diaz de Eabago, over two hun-
dred plans and systems were proposed and discussed. Four
writers were equally prominent in this long campaign.

In 1839 Louis Wolowski, a young man who subsequently
became one of the organizers of the first land bank, submitted
to the Academy of Moral and Political Science an essay which
gave to France her first information on the German land-
schafts. Inspired by this pamphlet the French Government
sent a special commissioner, Charles Edward Eoyer, of the
Ministry of Agriculture, to Germany and Belgium in 1844
to make an investigation of their land-credit institutions. M.
tEloyer died in 1847 at the age of 37, but his remarkable re-
port, compiled after a few months of travel, left a profound
and permanent impression upon students and legislators.

A few years later the Minister of Agriculture appointed a
commission of three to make further investigations. The
report of its secretary, Jean Baptiste Josseau, rendered in
1851, covered nearly all the European countries in which
land-credit institutions then existed. In the same year the
Chegaray report was presented on behalf of a legislative com-
mittee to which had been assigned the duty of examining the
various projects submitted to the National Assembly. This
document is a comprehensive account of the entire land-
credit movement in France. It summarized all the material
which had been accumulated and analyzed the projects at
length. Hence the French people, then thoroughly aroused,
ihad before them all available information ; and it led directly
to the idea of the long-term loan repayable by annuities and
the issue of debentures without fixed maturity.

FEANCE: THE CEEDIT FONCIEE 113

The law of 1853 was the result of the movement started
by Casimir Perier. Various amendments have been made in
details but its basic principles remain unaltered. The law is
divided into five parts. The first specifies the functions of
land-credit institutions and the ways in which they may be
organized; the second lays down rules for making loans, and
the third, for issuing debentures; the fourth prescribes the
measures to be taken for adjij^icating titles and protecting
loans against the claims of third parties, and the methods of
recovery against borrowers ; and the fifth enumerates the spe-
cial privileges and restrictions under which the business must
be conducted. For aiding any institutions that might be
formed, the law authorized the national government and the
departments to purchase certain quantities of their debentures
each year, and also appropriated $2,000,000 to be allotted
among them. The reformation of the mortgage and registra-
tion laws was left to subsequent legislation ; instead the land-
credit institutions were given a special procedure for purging
titles.

The law did not express any preference for the association
of borrowers (landschaft) or the joint-stock company. It
declared that both might be formed, but no landschaft was
ever created in France. A number of companies, however,
came into existence shortly after the passage of the act. The
Land Bank of Paris was chartered on March 38 ; of Marseilles,
on September 13; of Nevers, on October 20, 1853. Others
were started at Lyons, Toulouse, Orleans, Poitiers, Limoges,
Eouen, Bordeaux:, and Brest in the same year : in fact the Gov-
ernment then favored a plurality of institutions and intended
that one should be established for each department. But
doubts soon arose as to the advisability of such a plan. Fear
was felt that a large number of institutions could not be
properly supervised and compelled to conduct their business
along proper lines. Moreover, the trouble which the district
banks had encountered in the then recent panic of 1848 was
recalled as a danger that might result from competing com-
panies. These small commercial banks, which had been
formed during good times, throve so long as the calm lasted.

114 EUEAL CEEDITS

but when the crisis occiirredj and when their assistance would
have been most useful to trade and commerce, on account of
their meagre capital and resources, some were obliged to cease
operations and others to suspend payment, and they escaped
complete ruin only by consolidating with the Bank of France.

After a few months' trial with several companies in the
field, therefore, France decided that centralization and unity
of action were better than competition, and proceeded to
establish a large central institution with agencies throughout
the nation, which should make loans upon the same general
conditions and issue debentures of standard types. On De-
cember 10, 1852, Emperor Napoleon III promulgated a
decree which extended the powers of the Land Bank of
Paris, the first company organized, to all departments in
which no companies yet existed, conferred upon it the title
La Societe du Credit Foncier de France, authorized it to
absorb the other companies which had been formed, turned
over to it the appropriation of $2,000,000 (which has never
been repaid), and granted it a monopoly of 25 years.

A decree of 1853 allowed the Credit Foncier to award
prizes by lot upon the recall for payment of its land deben-
tures. A decree of 1854 provided that its president and two
vice-presidents should be appointed by the Emperor, and that
three of its directors should be selected from the Ministry
of Finance. In 1856 it absorbed the land banks of Marseilles
and Nevers. A decree of 1858 substituted the Credit Foncier
in place of the state for financing drainage projects and au-
thorized it to issue debentures guaranteed by the state for
this purpose. The inonopoly was not renewed, but the free
subsidy and permanent special privileges mentioned and
others later granted have enabled it to overcome aU competi-
tors. It is the only mortgage-bond company of consequence
lending on land situated in France. Its charter embodies
the main provisions of the law of 1852, so there is no need
to discuss the law apart from the charter and by-laws of
the company.

The president of the Credit Foncier (land credit) must
hold 200 shares of the company's stock. His salary is $8,000.

FEANCE: THE CEEDIT FONCIEK 115

He is the representative of the state and has control over all
affairs not otherwise assigned. He holds oflBce during good
behavior, as do also the two vice-presidents who perform such
duties as are delegated to them by the president. Each vice-
president draws a salary of $4,000. Each must hold 100
shares of stock. Shares so held are inalienable during the
terms of ofBce, and are deposited with the company as a
guaranty for good conduct. Besides these officers the Credit
Foncier has a board of directors, auditors, and a general as-
sembly of shareholders.

The board of directors is composed of the president; at
least 20 stockholders; the vice-presidents and auditors, who,
however, have no vote; and three high ofiBcials of the Ministry
of Finance. They receive a per diem for attendance at meet-
ings. Five of the members are retired each year by order of
seniority but are eligible for reelection. The board exercises
all powers not reserved exclusively to the president and other
officials.

The auditors must also be stockholders. They receive a
reasonable compensation. They watch over the affairs of the
company, especially the records and accounts, the issuing of
debentures, and the proper execution of the laws and the by-
laws. Their powers, however, are limited to making reports
and calling special meetings of the stockholders whenever they
deem it advisable.

The general assembly is composed of the 200 stockholders
holding the largest number of shares, but 40 constitute a
quorum if they own one-tenth of aU the shares which have
been issued. It meets regularly once a year on 15 days' notice
published in the two official newspapers. The president pre-
sides. Two stockholders having the largest number of shares
act as tellers. Only stockholders may hold proxies. The ma-
jority prevails. Each has one vote for every 40 shares held,
but no one may have more than five votes in his own name,
nor more than ten counting proxies. Everyone entitled to
attend the meeting has one vote, although he may not own
40 shares. The president and tellers select the secretary for
the meetings.

116 EHRAL CKEDITS

The docket is prepared by the president and board of di-
rectors in advance of the meeting, and nothing else can be
brought before the assembly during the sessions. The regular
procedure is to receive the reports of the president and audi-
tors, and at an annual meeting to elect directors and auditors
in place of those retiring. Upon proposal of the president
amendments to the by-laws may be made, but they require a
two-thirds majority and the approval of the Government.
E'otice of the proposal of amendments also must be specifi-
cally noted in the call for the meeting. The dissolution of
the company is likewise determined by the assembly.

The capital stock of the Credit Foncier is now $45,000,-
000, but it may be increased to $50,000,000, divided into
500,000 non-assessable shares of $100 each. Shares cannot be
bought or used as collateral by the conipany itself, except for
the temporary possession allowed for the recovery of unpaid
partial payments due thereon. Stockholders have the refusal
of all new issues proportionately to shares already held. If
new issues are sold above par, the premium is placed in the
special reserve. Shares may be made out in the name of the
holder or to bearer; if the former, they can be sold or trans-
ferred only on the company's register. Payment on shares
purchased may be made in instalments. The certificates may
be deposited with the company for safekeeping, but dividends
in any case are considered as legally paid when given to
bearer. The ownership of stock confers title to a pro rata
share of the profits and assets but no right of action against
the company therefor. Stockholders must abide by the de-
cision of the general assembly in all disputes between them
and the company.

The capital stock was designed mainly as a guaranty for
the debentures and is kept largely ia quick assets. The law
has strictly prescribed the form of investment so as to render
the capital stock always available for its primary purpose.
One-fourth must be kept in government bonds, one-fourth
represented by the company's office buildings, by loans to
colonies or countries under a French protectorate, or by se-
curities of the kind used for collateral by the Bank of France ;

FRANCE: THE CEEDIT PONCIER 117

only the remaining half can be legally employed in loan
operations. In 1911 no more than $1,101,565 of the real-
estate loans on the books of the Credit Foncier were made
therefrom, and this was an exceptional amount, authorized
by law to relieve the victims of the earthquake and inunda-
tions of the two preceding years. The balance is represented
in extensions granted to debtors in arrears on their annuities,
the cost price of properties taken in foreclosure, commercial
paper, and other fluid securities.

Five per cent per annum is allowed to shareholders out of
the earnings. After this dividend has been paid, the hoard
of directors must set aside a sum between five per cent and
20 per cent of the remainder of the earnings for the obliga-
tory reserve. The board may provide also for special reserves.
The balance of the earnings may be used for dividends. A
dividend not claimed within five years reverts to the com-
pany.

When the obligatory reserve equals one-half the capital
stock, no further payments may be made into it. This re-
serve is used to steady the dividends and assure five per cent
to stockholders each year. It is now about one-tenth of the
capital stock. Its investment rests with the board of direc-
tors, by whom it is held in quick assets.

The Credit Foncier operates only in France, Algeria and
Tunis. Its headquarters are at Paris, where, besides its gen-
eral oflSce, it has large safe-deposit vaults used extensively by
the public. It maintains a pension fund for retired em-
ployees.

The company's primary purpose is to lend sums on mort-
gage to landowners, repayable either at long term by annui-
ties or at short term with or without amortization, and to
create and issue debentures up to the amount of the loans
granted. With the consent of the Government, however, it
may use any system which would facilitate lending on real
estate, the advancement of agriculture, the improvement of
the soil, and the extinction of the land debt. It is authorized
also to lend with or without mortgage to departments, munici-
palities, syndical associations, hospitals, public establishments,

118 EUEAL CEEDITS

and on drainage projects, and to issue debentures against these
loans. In addition to this, it may discount the paper of a
subsidiary building company called the Sous-Comptoir des
Entrepreneurs de Batiment, and also receive deposits up to
$25,000,000.

The law requires one-fourth of the deposits to be kept in
account current "with the treasury department or ia securities
deposited in lieu thereof, and the remainder in government
annuities, treasury bonds, and negotiable instruments and
collateral receivable by the Bank of Prance. The deposits
may be loaned on the security of the company's debentures.

The Credit Foncier has two sources of funds for its opera-
tions. The first is its capital stock, reserves and deposits;
most of these funds are employed in carrying on a pure bank-
ing business or are placed in short-term loans or in invest-
ments specified by law. The second is the money realized
from the sale of debentures ; practically all of this is used for
long-term loans.

The long-term loans are those for periods between ten and
75 years. They must always be repaid by annuities. Those
imder ten years are known as short-term loans. These alone
may be repayable in lump or by instalments. As already
indicated, certain classes of borrowers need not give mortgage
security.

Loans for drainage projects run for 25 years and are re-
payable by an annuity of 6.41 per cent. If made to associa-
tions or corporations upon arrangement or guaranty of the
Government, the company may acquire a statutory lien
thereon through certain legal proceedings. In all events the
company has a right to the revenues and crops of the drained
lands for its annuities. This claim is second only to taxes
and public assessments or to the costs of making the crops,
and may be enforced by the same means provided for recov-
ering taxes if the company can prove that the money was
actually used for the purpose for which it was lent.

No mortgages need be taken for loans to the departments,
municipalities, syndical associations, public-utility corpora-
tions, hospitals, and religious and charitable associations. The

FEANCE: THE CREDIT FONCIEE 119

budgets, valuable assets, large properties, and, above all, the
high character of the management of such institutions, have
proved to be ample security. The use of the long-term loan
with amortization, the mother-idea of the Credit Fonder, is
peculiarly adapted to them, because the works which they
undertake are usually for the purpose of increasing their reve-
nue rather than for restoring the capital expended. The
incontrovertible usefulness of amortization for institutions
of this kind is shown by the fact that nearly one half of the
outstanding loans have been made to them. These loans
usually run for periods of thirty to forty years.

The syndical associations referred to are groups of per-
sons united to protect or develop a common property, to com-
plete projects which can be carried out best by collective ef-
fort, or to do anything else to further their mutual interests.
First mortgages are required for loans made to individuals,
but there are exceptions. Loans which are used to pay off
prior encumbrances are considered as made upon first mort-
gage if the payment results in putting the company's lien
above all others without any concurrent claims. The company
retains a sufficient sum out of the loan until these prior claims
are paid off or subrogated to the mortgage taken by it. This
exception to the general rule was absolutely necessary in
France at the period when the law was enacted. It was evi-
dent that most of the applications for loans would come from
landowners already burdened with debt, and if they had been
deprived of credit, the legislation would- have failed of its
aim, which was to relieve the farmers from oppression and
usurious practices and to convert their heavy existing indebt-
edness, bearing excessive interest, into easy annuity contracts,
and so enable it to be paid off gradually out of the yearly
savings from the products of the soil.

The Credit Foncier may lend to individuals upon property
covered by life estates or long leases, provided their value
added to the amount of the loan does not exceed one-half the
value of the property. This provision was introduced because
it often happens, especially in the cities, that real estate
offered for mortgage is thus encumbered to an extent very

120 ETJEAL CEEDITS

small compared with its total value, and to refuse a loan to
the life tenant would place the company in conflict with cus-
tomary methods of the country. Long-term leases in Europe
frequently run for 99 years, or three lives. The rent is rea-
sonable. The obligation of the lessee is to make all necessary
repairs and improvements, and finally to surrender the prem-
ises in as good condition as when he received them, less ordi-
nary wear and tear. The mortgage given is upon the revenues
of the property.

The amount of a loan made by the Credit Foncier on real
estate cannot exceed one-half the value of the mortgaged prop-
erty. The maximum is one-third for properties liable to
easy depreciation, such as forests, vineyards, orchards, nur-
series and the like, while mills and factories are estimated
only upon their value independent of their industrial pur-
poses. The property mortgaged also must have a steady and
certain revenue. This does not mean that at the time it is
offered for security the property should in fact be yielding a
revenue of the kind required; but it must be rentable and
capable of returning money in a regular manner. For this
reason the Credit Foncier does not lend upon theaters, mines
or quarries. No limit is fixed as to the size of a loan which
may be made to one person or on any piece of land.

There are other classes of property which may not be used
for security. The Credit Foncier does not lend on the public
domain or upon lands to which is attached a title of honor.
Moreover, lands held in entail or subject to servitudes, rights
and charges which cannot be removed, or lands of which the
applicant is only part owner or holds the fee without the right
of possession, or has no power to dispose except in a speci-
fied way or upon authority of other persons, may not be taken
for security unless all parties interested consent to the mort-
gage. The company, of course, cannot do business with
minors, outlaws, incompetent or missing persons except
through their guardians or trustees, or usually with wives
without consent of their husband^.

Applications for loans must be made on forms furnished
by the company, and must set forth the amount and length of

FEANCE: THE CREDIT FONCIER 121

the credit desired and the name of the applicant's attorney.
If the applicant is a department, mimicipality or corporation,
authority for the application and the resolution providing
for the repayment of the loan must be attached. If the ap-
plicant is an individual, the location, nature, value, revenues,
and taxes of the real estate offered in security must be shown
and papers produced to prove the owner's title, civil state
and capacity, ajid marriage agreements affecting the property.
The applications may be filed at headquarters or in any of the
ofBces of the company throughout the country.

After the value of the property and the capacity of the
owner have been passed upon by the field agents, the board
of directors determine the amount of the loan which may be
granted and a conditional contract is signed. This contract
contains aU the terms of the loan and binds the company to
pay and the applicant to receive the amount applied for if the
title to the property is found perfect. It is filed with the
public recorder and prevents the applicant from transferring
his property or encumbering it until the deal is closed or
called oS.

The Credit Foncier then proceeds to avail itself of the
most important privilege which has been given to mortgage-
bond companies in France imder the law of 1852. After as-
suring itself that the title is clear of all registered claims,
it starts a procedure which brings to light any hidden claims.
This is called the "purge." It consists of a short notice offi-
cially published calling on third parties to show their rights.
The process takes only three weeks and costs about one
doUar. If claims are presented as a result of this notice, the
company may at its discretion oppose them and call on the
owner to pay the cost of the suit, or cancel the registration
of the conditional contract and reject the application. If
claims are not presented, no third party can ever afterwards
contest the company's lien, while the loan applied for must
be granted. The filing of the conditional contract and the
completion of the formalities of the purge constitute the
company's mortgage. The purge for mortgages is nothing
more than the Torrens system which was subsequently devised

122 EUEAL CEEDITS

in South Australia in 1857 for the registration of all titles to
land. With other persons a mortgage must be inscribed anew
every ten years to keep it alive, but this requisite is dis-
pensed with for companies licensed under the law of 1852
during the entire period of the credit. The final contract
for the loan is signed by an official representative of the
president of the company and by the borrower, and it is
certified by the attorney of the latter. All the costs are
borne by the applicant, even if the loan is refused. They
average about 3.5 per cent of the loan; thus, for a loan of
$2,000 the costs would be $70.

If the loan is for a short term, the borrower contracts to
pay the interest and the principal or instalments thereon at
the stipulated times, but if it is for a long term he contracts
to pay neither interest nor principal. He agrees to pay an
annuity in cash every six months in advance. The annuity
must not exceed the revenue of the mortgaged property.
This clause was inserted in the law to prevent the borrower
from obligating himself to pay more than he could obtain
from the returns of the soil. The annuity does not include
any assessment for cost of business, as is the ease with the
German landsehafts. Its rate of the annuity, as already
shown, is computed upon the amount of the loan, the length
of the credit and the agreed interest.

The rate of interest on money loaned must not exceed
by more than six-tenths of one per cent the rate of the de-
bentures by ^hich it was raised, except in Algeria and Tunis.
The present rate of the Credit Fonder for mortgages in
France is .4.30 per cent. At this rate the half-yearly annuity
necessary to pay $1,000 in 30 years is $29.82218. If the
period were lengthened the annuity of course would be
smaller. As a rule a very long term is taken, since the
choice of periods between ten and 75 years is left to the
borrower.

So long as the borrower keeps his engagements the com-
pany can never recall the loan. The borrower, however, may
make advance payments in whole or in part for a small in-
demnity of one-half of one per cent of the amount. For all

FEANCE: THE CEEDIT FONCIEK 133

payments except annuities he may use either currency or
debentures of the issue of his loan. Accordiag to the law the
company is bound to receive debentures so tendered at par, no
matter what their market quotation may be. The courts
cannot grant a debtor of the Credit Foncier any delay in the
payment of annuities, nor can such payment be stopped by
any legal proceeding. This means that a creditor neither
of the company nor of its borrowers can interfere by any
process of law with these payments.

If a borrower defaults his interest or annuity the Credit
Foncier may obtain an order of court putting it in possession
of the mortgaged premises 15 days after notice. Five per cent
interest is charged on arrears. During this sequestration the
company receives the revenues and crops, may rent or farm
the land, make aU necessary improvements and repairs, and
do anything for its upkeep as an owner. The receipts are
applied to the payment of the debt and expenses. When its
claim is satisfied the company must render an account to the
debtor, turn over to him any balance which remains in its
hands, and surrender possession of the land.

Should the arrears be not collected through the seques-
tration, the Credit Foncier may apply to the court for an
order of expropriation. This procedure requires only one
month and may be taken whenever the loan may be called
in. The breaches of the contract which give the company
this right, besides an uncollectible annxiity or interest, are the
bankruptcy of the debtor, failure to repair damages, and fail-
ure to give notice to the company within one month of any
conveyances he may have made affectmg the title or pos-
session of the property or of any deterioration resulting from
fires or other causes.

During the trial of the case the company may take pos-
session and levy on the property for the full amount of its
claim. Should there be a dispute over facts the matter is
summarily decided. The company's books and records pre-
vail over any evidence furnished by the borrower. No appeal
is allowed. After a few formalities and the usual publica-
tions, the sale is held and quickly confirmed, transferring

124 EUKAL CEEDITS

all the defendant's rights in the mortgaged property to the
purchaser.

The distinguishing feature of a land-credit bank is the
right to issue bonds or debentures. No matter whether its
form of organization be cooperative or corporate, these must
be the chief sources of fimds for its operations. They are
negotiated only after the loans are made, and through them
the credit value is separated from the mortgaged property,
split up into convenient parts, and mobilized, while the bank
which issues them becomes the guarantor-ia-chief to the lend-
ers for the return of the money by which the loans were
made.

From December, 1856, to July 24, 1877, except for an
interval between May, 1869, and December, 1870, the Credit
Foncier employed the German landschaft method and made
its loans in debentures. Now, however, it makes its loans
in cash only, and since the retirement of the series issued
prior to 1879, the company has stopped receiving debentures
on advance payments of borrowers, in spite of the law and
the provisions in its charter. Debentures are issued and used
now only for raising funds for carrying on the company's
operations.

The debentures are of four classes. The first class are for
long-term mortgage loans; the second for loans to depart-
ments, municipalities, public corporations, etc.; the third are
of three- or five-year maturity for short-term mortgage loans ;
and the fourth, guaranteed by the treasury department, are
for drainage projects. No debentures of the fourth class are
in issue. Those of the first class are called land, and those
of the second communal, debentures. The total of all classes
in circulation must not .exceed 20 times the capital stock of
the company. Land debentures may be issued in denomina-
tions as small as $20.

The land and communal debentures may be made payable
to bearer or to a person denominated thereiu. They may be
transferred in the first case by mere delivery, in the second
case, only by written assignment on the stub of the book
from which they are detached. They are numerically re-

PEANCE: THE CEBDIT FONCIEE 125

corded, and must be stamped with the company's seal, signed
by a director, and vised by the president. The interest is
payable half-yearly, and the date fixed for the payment of
the annuities on the loans is fixed at least three months
in advance of the interest date on the debentures. This gives
ample time to make recovery against debtors in default.

The debentures are issued in large blocks or series. The
smallest existing series is of $50,000,000, and the largest of
$180,000,000, Although the company thus raises its operat-
ing funds in advance, however, the face value of debentures
in circulation must never exceed the amount of the outstand-
ing loans. This means that there must be a countervalue of
mortgages or loan contracts for each and every debenture
sold. Money realized from the sale of debentures may be used
for no other purpose than making loans. Pending its em-
ployment for this purpose it must be invested in govern-
ment bonds or other safe securities.

The land debentures have no fixed date for maturity.
They are retired by drawing lots every six months. At each
drawing enough debentures must be called in so that those
left in circulation shall not exceed in face value the total
amount of loans outstanding. Debentures withdrawn by lot
cease to draw interest. Their principal becomes due after
the notice that they have been drawn for redemption is duly
published in the newspapers and posted at headquarters.
They then must be cancelled and destroyed. Debentures pur-
chased by the company, however, may be returned to circu-
lation upon a new vise by the president.

With the consent of the Government the Credit Foncier
may issue its debentures with premiums or prizes. Prizes
are given in all but one of the 13 issues which now have
debentures in circulation. In some of them debentures drawn
for retirement may receive not their face value of $30, $50
or $100, but $200, $1,000, $2,000, $5,000, $10,000, $20,000
and even $40,000. In 1911 there were 4,362 chances out-
standing amounting to $2,842,000. A drawing in one or
more of the issues is held every month at headquarters. It
is plain lottery and, as the management says, creates quite

136 EUEAL CEEDITS

an attraction for the debentures. The company's pamphlet
reads in translation as foUows:

On the day of the drawing the wheel is brought forth from
its iron clad and guarded vault. In presence of the public and
the auditors, the president of the Credit Foncier surrounded
by the board of directors opens the session. The wheel is re-
volved many times so that the numbers may be thoroughly
mixed. The seals are then examined and broken. The slot is
unlocked and opened, and a child from a public orphan asylum
with naked arm plunges its hand into the wheel and draws out
a number which the president immediately reads, and thus
makes known to the anxious public the debenture winning the
prize.

Lottery, however, is a common practice in France. The
bonds of the city of Paris and of many other public and
private corporations are payable with prizes. The absence
of this feature would probably lower the price of the deben-
tures of the Credit Foncier but it is difficidt to determine the
effect of its presence on account of the other opportunities
open to the public to invest in bonds having similar attrac-
tions. Sir Frederick A. Nicholson contends that this lottery
is not a gamble, because the company stands no chance of
winning and the bondholders no risk of losing, since the
debentures must always be paid at par and the prize or
premium is calculated as a part of the cost of the money
raised by their issue.

Other special privileges attach to the debentures of the
Credit Foncier. They cannot be seized by any legal process,
nor may any suit be brought to stop the payment of their
principal or interest except when they have been lost. The
company is not responsible for the regularity of endorse-
ments on debentures and is legally discharged, as in the case
of dividends on shares, by a payment of the interest to the
holder who presents them. They may be used as collateral
by the Bank of France, or as investment for funds held
in trust for non-competents and of municipalities, pub-
lic institutions and corporations of public utility, in aU

FEANCE: THE CKEDIT FONCIEE 127

eases where these establishments are authorized to invest their
funds in government bonds. Moreover, the courts have de-
cided that they may be used also for the investment of all
funds which are intended by agreement or understanding
to be placed in real-estate mortgages. The debentures are
free from the stamp tax, the company being subject in lieu
thereof to a small annual tax upon its issues. The interest
rates are determined by the board of directors. Debentures
may be issued below par but must be redeemed at least
at par.

The Credit Foncier may use the internal revenue ofBees
for making its remittances to holders of debentures and for
receiving the dues of its borrowers. It may also deposit its
funds in the national treasury and keep a current account
there. Monthly and yearly reports must be submitted to the
Minister of Finance on forms prepared by that office.

CHAPTEE XIII

mANCE: LAND CEBDIT FOE AGEICTJLTUEE

Sous-Comptoir des Entrepreneurs de Batiment. — Subsidiary Company
to Credit Fonder. — Operations and Management. — ^Applications
for Credit. — Long-term Credit. — Statistics of Operations. — Not
the Intended Aid to Agriculture. — Reason in Its Centralization.
— Central Bank for Agricultural Loans. — ^Long-term Loans to
Associations through Credit Agricole Mutuel. — ^Long-term Loans
to Individuals. — Two Methods of Amortization.

MtrcH private property was damaged or destroyed in
Paris during the revolution of 1848, preceding the establish-
ment of the Second Eepublic. The Government decided to
help those who had been afflicted the most by public dis-
orders. To this end it assisted in founding the building and
loan company called the Sous-Comptoir des Entrepreneurs de
Batiment.

At first the notes of the borrowers of this company were
endorsed over to a bank called the Comptoir National d'Es-
compte, which was authorized to discount notes with only two
signatures. Such paper is not bankable ia France unless
especially authorized by law. In 1860 the Credit Foncier was
authorized to discount this paper and was substituted for
this purpose for the Comptoir National. A contract made
with the Sous-Comptoir des Entrepreneurs was approved by
law. Now the latter concern is practically a subsidiary of
the Credit Foneier ; its capital stock is $1,000,000, and three-
fourths of it is deposited as a guaranty fund with the Credit
Foneier upon interest equal to the average rate of discount on
its notes.

The operations of this company cover everything relating
to the building business and public works, and its function

128

FEANCE: LAND CEEDIT FOE AGEICULTUEB 129

is to procure for contractors, traders, and laborers therein,
whether they be principals, sureties, or endorsers, the dis-
counting of their negotiable paper, guaranteed by the suffi-
cient number of signers or secured by real estate or pledges
of personal property; but it can enter into no operation
without the consent of the Credit Fonder, and so has no
control over the remaining one-fourth of its capital stock and
reserves, while its inactive funds are kept on account cur-
rent with the latter company.

The manager of the Sous-Comptoir des Entrepreneurs is
appointed by the Minister of Finance. The by-laws adopted
with the approval of the Government cannot be changed with-
out its consent. The president and vice-presidents of the
Credit Foncier may attend the meetings of its board of direc-
tors and of the general assembly of stockholders.

The limit of credit is fixed by the Credit Foncier and
can never exceed twice the value of the issued shares of the
Credit Foncier and the sub-company's own capital stock.
The Credit Foncier undertakes to supply the Sous-Comptoir
des Entrepreneurs with the necessary funds to carry on its
business.

Every application for credit addressed to the Sous-Comp-
toir des Entrepreneurs is submitted to its board of directors.
If favorably considered the board appoints a commission from
among its members to make a report, upon which it deter-
mines the amount and length of the credit as well as all
other conditions of the loan. If the applicant agrees to the
terms and furnishes the guaranties required, his application,
papers and plans, together with the report of the commis-
sion and the resolution of the board, are delivered to the
Credit Foncier, which in its turn approves or rejects the ap-
plication. If it is approved, the Credit Foncier draws up a
contract which is signed by the applicant and a director of
the Sous-Comptoir des Entrepreneurs. The only part of its
business to which the Credit Foncier extends its assistance
is that connected with building operations and public works.

When any particular enterprise is accepted, the Sous-
Comptoir des Entrepreneurs selects an architect to watch over

130 EUEAL CEEDITS

the work and to certify the progress made by the owner.
Three days before each pajrment of the loan is due the bor-
rower signs a note to its order payable ia three months,
which is endorsed by a director over to the Credit Foncier.
Two days thereafter the amount called for by the note, less
the interest at the rate then allowed by the Credit Foncier for
mortgages, is given to the Sous-Comptoir des Entrepreneurs.
Eenewals are made from time to time at the same disQount
rate during the whole period agreed upon in the contract.

After the completion of the building, if the owner needs
further credit he may obtain a long-term loan on mortgage.
In this way, through its connection with the Sous-Comptoir
des Entrepreneurs, the Credit Foncier may extend credit to
individuals without mortgage security, and also assist owners
to build on unimproved lands, in spite of the provision of
the law which forbids it to lend on property not having a
durable and certain revenue.

In 1911 when its capital stock was not yet increased to
its present figure and stood at $40,000,000, the Credit Foncier
had outstanding $461,060,057 of mortgage and $409,357,156
of communal loans, or a total of $870,417,213. The deben-
tures in circulation against these securities amounted to
$785,639,948. The rate of interest for land loans was 4.30
per cent, for public establishments 4.10 per cent, and for de-
partments and municipalities 3.85 per cent a year. One of
the issues of land debentures yielded 2.80 per cent, another
of land and several issues of communal debentures, 2.60 per
cent ; and the rest of the issues 3 per cent a year. The sums
coming from mortgage and communal loans were $2,986,976,
making the total receipts from all sources $6,436,429. De-
ductions and expenses left a net profit of $2,654,476, out of
which was paid a dividend of 6.40 per cent on the capital
stock.

The deposits and current accoimts on hand were $16,762,-
173. The outstanding loans to the Sous-Comptoir des
Entrepreneurs amounted to $22,783,500, and in Algeria and
Tunis to $24,602,911. Over one half of the mortgage loans
made by the Credit Foncier since its foundation have been

PEANCE: LAND CEEDIT FOE AGEICULTFEE 131

on property in the city and suburbs of Paris. Loans between
$3,000 and $10,000 are the most numerous; next to them
are the loans of $1,000 and under. As to length the most
numerous loans are those of 60 and 75 years; next to them
are the loans of 21 to 30 years. An average of twenty-two
and a fraction loans are made ia the cities to one in the
country, which has received only one-fourth of the funds of
the company used for mortgages. The doubtful claims on
hand amounted to $372,048, and the total value of proper-
ties acquired in foreclosure and not yet disposed of was
$1,848,807.

In 1913 the market price of the 3.5 per cent debentures
was 97.4 per cent, and of the 3 per cent debentures, 90.6 per
cent of their face value. Shares usually are sold at a price
to net the purchaser between three and four per cent on his
investment.

Originally the Credit Foncier was authorized to lend only
on real-estate mortgages in France. Its powers to make
loans without mortgage to departments, municipalities, syndi-
cal associations, hospitals and public establishments, and in
Algeria and Tunis, were added by successive laws and de-
crees, the first of which was promulgated eight years after
its foundation. All the voluminous literature, official rec-
ords and reports relating to the creation of this great land-
credit institution show that the chief if not the sole purpose
of the Government in bringing it into existence and ia vest-
ing it with special privileges was to aid agriculture. Its
founders expressed similar intentions in a most emphatic way
but the figures just quoted display a wide discrepancy be-
tween promise and performance.

The fact that its loans on urban properties and to munici-
palities comprise the larger part of its operations does not
signify, however, that it has been of no use to agriculture.
It is stiU the greatest single factor in Prance for affording
easy credit to rural landowners. AU persons ovming large
or medium-sized farms are welcomed by the Credit Poncier,
and the total of loans to agriculture is enormous. But the
owners of small holdings are utterly ignored, and they con-

133 EUEAL CEEDITS

stitute the majority whose needs and resources surpass those
of all others. The reasons for this shortcoming are natural
and inherent. The Credit Foneier lacks' proximity to the
farmers, without which, says Sir Frederick A. Nicholson,
"there is no such thing as credit on any reasonable terms
for small folk." The institution is highly centralized.

Decentralization was once planned for it& business by
establishing local boards for granting loans ia all the depart-
ments into which the republic is diyided. This movement
ended in opening agencies in the big cities, which are now
used, however, mostly for selling debentures and collecting
dues. Loans continue to be granted only upon examiaation
by inspectors and appraisers from headquarters. More appli-
cations are presented than can be allowed. Preference is
given where trouble and expense may be saved, so the bulk
of the loans go to the cities.

A central bank was created in 1860 as an annex to the
Credit Foneier, with the object of making agricultural loans
throughout the country for short terms and in small amounts
on personal security. It did not succeed because, as ex-
plained by the Minister of Agriculture, they began at the
top and crowned the edifice before building a firm founda-
tion of groups of local associations. The disastrous failure
of this bank, the causes of which will be fully explained in
another chapter, nearly forced the parent company into bank-
ruptcy. Since that time the inability of the Credit Foneier
to render extensive service to small farmers has been so
thoroughly recognized that the Government has never con-
sidered it in any of the plans proposed and adopted by the
National Assembly for improving rural-credit facilities.

The long-term loans provided for by the law of 1906 are
made from funds obtained by the state from the Bank of
France and administered through a system of rural banks
called the Credit Agricole Mutuel, subject to the general con-
trol of the Ministry of Agriculture. This system and its
relation to the Government and the Bank of France will be
described hereafter. The total of the collective loans each
year must not exceed one-third of the annual payment made

FEANCE: LAND CEEDIT FOE AGEICULTUEE 133

by the Bank of France to the state, and they can be made
only to agricultural cooperative associations organized for the
production, manufacturing or marketing of farm products.
In the chapter describing the Credit Agricole it will be found,
however, that real estate security is not always required for
the credit accorded to the cooperative associations under the
law of 1906.

Under this law a regional bank may lend to such an
association duly afiBliated with a local bank of the Credit
Agricole Mutuel sums repayable within 25 years provided
they be used for the purchase of real estate, for erecting
buildings, or for installing or operating machinery therein.
The interest is two per cent per annum ; for a loan of $1,000
at this rate to be amortized iu 25 years, the annual dues
would be $51.22044. No association may receive a loan unless
it is composed entirely of farmers and limits the maximum
for its dividends to four per cent a year. The total of the
loans must not exceed twice its paid-in capital stock.

The regional bank is held responsible for the loan and for
its proper use. It may pay over the money only as the work
for which it was advanced progresses. If the loan is made
for the purchase or improvement of land, a first mortgage
must be given to the bank, which has all the privileges pro-
vided by the law of 1852 for clearing the title of the prop-
erty and for recovering its claims.

The long-term loans to individuals provided for by the
law of 1910 also are made out of funds obtained from the
Bank of France and administered through the Credit Agricole
Mutuel and land-credit associations organized outside of this
system, conformably to a law of 1908.

The object of the law of 1908 is to aid workers to ac-
quire small habitations or garden plots of less than 2.41
acres. The law of 1910 was enacted as a state measure prac-
tically in supplement to the laws making military service
obligatory. All the able-bodied male population of France
must serve a military term of three years. Over 200,000
yoimg men, having completed their terms, are annually
dropped from the ranks, many with inclinations to live in

134 ETJEAL CEEDITS

cities or with habits of wandering, contracted during their
service in the Army or Navy. The spirit of the law of 1910
is to assist young men wishing to become farmers to buy or
improve small homesteads or clear them of encumbrances
with the aid of the state.

Two-thirds of the funds coming to the state from the
Bank of France may be used for these long-term loans to
individuals. The state does not deal directly with individ-
uals. It advances the money to the land-credit associations
and to the regional banks, as intermediaries of the local
banks, in the form of loans for 20 years without interest up
to twice the amount of their capital stock. These concerns
may employ the money only for the purpose for which it is
intended.

A loan made by a local bank to a member must not exceed
$1,600 in amount or 15 years in duration. The interest must
be at least two per cent a year, which is the rate at present.
Two systems of amortization are allowed. In one the bor-
rower repays the loan by annuities, in the other by instal-
ments. Security is always required. If the borrower uses
the loan to buy property he must give a first mortgage
thereon. The banks have the privilege of the "purge" speci-
fied in the law of 1852 to clear the title. If the property is of
such a nature that it cannot be mortgaged, that is, if the
applicant formally declares it to be his homestead exempted
from seizure for his debts, the bank must insist upon the
endorsement of responsible persons or an insurance policy
on the life of the borrower to protect its claims. By 1913
close to $3,400,000 had been distributed by the state in these
long-term loans for creating small rural homesteads.

Besides assisting farmers to acquire small homesteads,
Prance has appropriated $19,300,000 to be lent to laborers
for building cheap urban dwellings. The distribution of this
appropriation is intrusted to an institution called the Societe
Credit Immobilier, or Eeal Estate Credit Company. This
company pays the state 2 per cent and charges borrowers
between 2 and 3 per cent, the difference being used to cover
expenses. At present the rates are 3 per cent for laborers

FEANCE: LAND CEEDIT FOE AGEICULTUEE 135

with two children, 3% per cent for laborers with three chil-
dren, 3^ per cent for laborers with four children, and 214
per cent for laborers with five children. The Soeiete Credit
ImmobUier will advance only fonr-fifths of the amount neces-
sary to build the dwelling, and it requires all dweUiags to
be constructed upon lands and plans approved by its board
of directors. The liens, which must always be secured by
mortgage, may be repaid by annuities running 30 to 30 years.

CHAPTEK XIV

ITALY

Present Institutions. — ^History of Land Credit. — ^Failures Due tO'
Overlooking Farmers' Interests. — Istituto ItaJiano di Credito
Fondiario of 1891. — Banks of Issue. — ^Present Savings Banks. —
Land-credit Business Kept Separate. — ^Loan Security. — Interest.
— Debentures. — Payments. — Capital Stock of Istituto Italiano. —
Powers of Company. — Emphyteusis. — ^Agricultural Credit Given
by Savings, Commercial and Cooperative Banks, the Monti Pru-
mentarii, and Associations of Land Owners.

The campaign for organizing land-credit in Italy was
started over half a century ago and it has not ended yet.
The history of land credit in Italy is the worst of any Euro-
pean country and shows how easily hasty and defective legis-
lation may lead to an inflation and collapse of credit. Eight
laws were passed and 16 royal decrees promulgated within
the first 20 years of the campaign. These enactments were
inspired by the needs of agriculture but framed to include
both the town and country. The last of them was placed on
the statute book about the time when the larger Italian cities
began to boom, and the new credit facilities were recklessly
utilized in the wild craze which ensued to finance building
projects, to the exclusion of rural betterment. The Govern-
ment encouraged this boom for five years and then, reversing
its course, set on foot investigations and strove to stem
the tide, but too late to avert disaster. The state finally
had to intervene to protect bondholders from the losses
incurred through bad loans made by most of the banks
which the state had empowered to do a land-credit busi-
ness, and many years were required to straighten out this
trouble.

The Italian system at present comprises a nxunber of
136

ITALY 137

benevolent or non-profit making institutions and one com-
pany, created by special acts or royal decrees but all operat-
ing under general laws. There is neither monopoly, special
privilege nor state aid now, and in the free competition allowed
interest rates have been so reduced that borrowers obtain
money on as easy terms as landowners in any other nation.
These institutions do not cover aU Italy equally. They
have not yet supplied the islands and the southern part of
the coimtry with adequate credit facilities, but year by year
they have absorbed a larger proportion of the land indebted-
ness and they are able to extend their operations as rapidly
as the intelligence and material needs of the farming class
advance and develop.

In 1861, after various projects had been formulated and
one launched without success, the Italian Government ap-
pointed a commission to study land credit. The commission
advised that a company be established along French lines,
with a state subsidy and a board of directors composed of
nine Italian citizens and eight Frenchmen under a high
ofiBcer of the Credit Foncier of France. This recommenda-
tion was rejected. A second plan was presented on October
4, 1865, dividing Italy into northern, central and southern
zones, and proposing a monopoly to an existing savings bank
in each zone. But on November 21 of the same year a third
plan, based on an agreement between the Government and
five savings banks, was adopted, and in accordance therewith
Italy enacted her first land-credit law in 1866.

The law gave to each of these five institutions the exclusive
right to issue debentures against real-estate mortgages and
loans to municipalities within its specified territory. In
1870, 1872, and 1873, three other savings banks were given
the same right for their respective territories. The arrange-
ment, however, was unsatisfactory. By the end of 1880 the
banks had lent only $48,354,994 of the $1,302,480,000 of
interest-bearing indebtedness which encumbered the land in
Italy, although a law of 1873 had authorized the king to com-
pel them to open branches so as to get in closer touch with
landowners.

138 EUEAL CEEDITS

In 1881 these institutions held a conference the object
of which was to have their territorial limits removed. This
was accomplished in 1885 by the second law of importance
respecting land credit in Italy. The law allowed the banks
to operate throughout the kingdom but took away their mo-
nopolies. It authorized the organization or license of other
banks provided each had a capital stock of $3,000^000. Later
on licenses were given to the Bank of the Tiber and the
Bank of Italy. Associations of borrowers were also author-
ized, prowded the properties of the members were worth
$1,000,000 and only half of this was used as cover for deben-
tures. No association of borrowers, however, came into exist-
ence until 1911. In that year about 300 Sicilians formed the
Landowners' Mutual Association to operate throughout the
kingdom.

Other laws in 1885 authorized the banks to finance sani-
tation projects in cholera-stricken Naples, and in 1887 to
make loans in several provinces to restore buildings dam-
aged by earthquakes. The Government, in fact, seemed to
consider that the chief object of these banks should be to
extend help to large enterprises and to property owners in the
cities, and it was bitterly accused of encouraging them in that
direction. By this time their business had reached enormous
proportions but the service rendered farmers and small land-
owners was insignificant. The average size of aU loans was
over $10,000, and a large portion of them were in Eome, where
the boom had been most active. The excuse for ignoring
the farmers was that the banks found that they could not
accord credit away from their immediate vicinities except in
the capital city.

In 1887 one of the banks failed. By 1889 the price of
debentures began to fall, owing to excessive issues and public
distrust. An effort to create an outside market for them in
France proved futile. No more money could be raised and
the boom burst. Defaults in loans became frequent and the
arrears of borrowers and imsalable properties taken in fore-
closure tied up the funds of the banks. The Government
then realized that something was wrong with the system.

ITALY 139

The chief mistakes were that the farmers' interests had
been overlooked, and that the banks had involved themselves
too heavily in building operations in the large cities and
had let their real-estate transactions become badly mixed with
their banking business. In 1890 the Government, returning
to the original idea, provided by its third important law for
the creation of the Istituto Italiano di Credito Pondiario, a
bond and mortgage company similar to the Credit Foncier
of France. When this company was chartered in 1891, aU
other banks were compelled to withdraw into their original
territories, except two which were allowed to continue opera-
tion in Rome. The intention was to have the Istituto handle
the loans in the cities and those of large landowners and to
require the savings banks to devote their attention to small
farmers in their respective neighborhoods. A commission was
appointed to investigate the causes and extent of the trou-
bles which had arisen.

In 1893 another bank failed. In the same year the mort-
gage laws were reformed by the fourth law of importance and
the three banks of issue which had been acting as land banks
were ordered to close up their land-credit business. The
disappearance of these four banks left large areas of Italy
without land-credit facilities. Hence, on August 5, 1895,
the law of 1885 was amended to allow land-credit compa-
nies to be organized with only $400,000 of capital. This
amendment brought no results, and in November aU existing
banks were empowered to make loans in the areas abandoned
by the four banks just mentioned.

In 1896 by another law territorial restrictions were com-
pletely removed, and aU banks duly licensed were again al-
lowed to operate throughout the kingdom. Banks of issue,
however, were forbidden forever to extend land credit. The
investigation showed that those which had done so did not
properly segregate their real-estate transactions from their
banking business, and that they had frequently entered into
agreements with building contractors, discounted their notes
or given them drawing accounts, with the object of sharing
in the profits and in the hope of strengthening the security

140 EURAL CREDITS

for their loans when the building operations they had thus
financed were finished.

The six banks of issue in Italy, of which three had been
licensed to grant land credit, had immobilized $59,940,000
of their assets within the comparatively short period of their
operations. They committed the errors which the Credit
Foncier of France avoided through its connections with a
subsidiary company, the Sous-Comptoir des Entrepreneurs de
Bitiment. To save the country from the consequences of
these errors the state had to guarantee the payment of the
debentures of one of the largest banks, on terms, however,
which the holders were forced to accept.

These laws were codified in 1905. At present there are
five savings banks, one company connected with a savings
bank, one landowners' association, androne joint-stock com-
pany operating under this code, while all institutions or
societies authorized to issue debentures against real-estate
loans are subject to its provisions and amendments unless
specially excepted. These savings banks, which are very old,
were created for some object of charity or public utility by
funds donated by the Government or by philanthropists.
Their original purpose and spirit have been maintained, and
any profits gained are used to increase these funds or re-
serves. Four of them make loans throughout the kingdom.
The fifth restricts itself to the province in which it is located.

The oldest of these benevolent institutions is in Siena. In
1500 Siena, then a republic, granted to some Jewish capi-
talists, their heirs and assigns, the right to make loans on
pledge or mortgage throughout its territory. The conces-
sion was misused, so in 1569 an old charitable establishment
founded in 1471 was revived by the Government to combat
the Jews. This concern did not bring the expected relief
because it confined its business entirely to taking pledges.
Thereafter a special mortgage bank was created by the Gov-
ernment with a capital composed of shares of one hundred
scudi ($93). The capital not being raised by private sub-
scription to the required amount, the Grand Duke Ferdi-
nand II of Tuscany completely reorganized the bank, ad-

ITALY 141

vanced to it 200,000 scudi on the guaranty of the commune,
and renamed it Monte dei Paschi, or the bank for the pasture
lands of Siena. This public savings bank of Siena now has
many branches outside of that locality, and besides receiving
the deposits of the poor, extends short- and long-time credit
in small and large amounts, and does an accident insurance
business for workmen.

Following this bank in chronological order is the Pious
Works of Saint Paul of Turin, created by the absorption
of various funds and the consolidation of a number of con-
cerns of a charitable nature, some of which were established
in 1562. It was reorganized by royal decree in 1852, and its
board of directors is now composed of 24 members, one half
of whom are appointed by the city of Turin and one half by
the Minister of the Interior. The board manages these com-
bined funds but keeps a separate account for each.

The next in point of age is the Savings Bank of Milan,
founded in 1825 by a special tax levied upon real estate in
Lombardy. This tax was collected between 1815 and 1817
to aid poor people who had suffered from a drouth which
destroyed the crops just before that period. The unex-
pended portion was turned over to this bank. At first it made
only mortgage loans but now does all kinds of commercial
banking, while its deposit business is one of the largest in
Italy.

The other two are the Savings Bank of Bologna and the
Savings Bank of Verona. The former has a joint-stock
form of organization but its stockholders receive no dividends.
The latter was founded in 1900 with certain endowment funds
for the Venetian provinces and Mantua. Besides these five
institutions, the Land Credit Company of Sardinia was or-
ganized as a corporation in 1898 by the shareholders of the
Savings Bank of Cagliari.

The land-credit business of these charitable and public
savings banks is carried on in special sections so as to segre-
gate it from all other affairs. Each section generally is man-
aged by a board of directors and a committee of supervision
composed of sis members, of whom one is an officer of the

143 EUEAL CREDITS

bank, one a representative of the provincial council, one a
representative of the city council and one a representative
from the local chamber of commerce. The other two are
auditors appointed by the bank.

Eeserves are compulsory. If the bank is a joint-stock
company, it must set aside one-fourth of its net annual profits
until the reserve equals at least one-fifth of the paid-in
capital. If it has no capital stock, the reserve must accumu-
late until it reaches, together with any guaranty fund, one-
tenth of its debentures in circulation. The reserves must be
invested in bonds of the Government or of other land-credit
institutions. Supervision is exercised by the Minister of Agri-
culture, Industry and Commerce, who has the right of inspec-
tion, and the authority to prescribe rules for the conduct of
business.

Loans of the savings banks must be secured by first mort-
gages on real property worth at least double their amount
and yielding a durable and certain revenue. The restrictions
regarding the kinds of property allowed for security are
similar to those in the French law. If the money for a
loan comes out of the capital stock or funds actually belong-
ing to the savings banks, the loan contract may provide for
repayment in lump. If it comes from the issue and sale of
debentures, the loan must be made repayable only by annui-
ties, unless the period of the credit is imder ten years, when
it may be made repayable in yearly or half-yearly instal-
ments or otherwise. The longest period allowed is 50 years.

The interest rate on a loan must equal that of the deben-
tures issued against it, and is determined by the bank. In
addition to the interest, annuity or instalment, the borrower
may be required to pay 0.45 per cent of the principal each year
for the expenses of business and a further 0.15 or 0.10 per
cent as a government tax, together with all costs of the
loan. The interest and annuity must be paid in cash. The
loan may be prepaid in whole or in part and debentures used
for this purpose, but the contribution towards the expense
of business and the government tax continue on the full
amount of the loan until its complete extinction.

ITALY 143

The savings bank frequently extend credit for periods of
a few years on running accounts up to specified amounts,
in a way that requires the borrower to pay interest only on
the balance due instead of upon the full face value of the
mortgage given as security. Such loans, as weU as loans out
of the banks' own funds, may be made in cash, but in all
other cases the bank simply exchanges its debentures for the
borrower's mortgage and, unless it does the selling for him,
the borrower sells them himself and must suffer the loss if the
sale be at less than par.

The denominations of these debentures are $30 or more,
bearing three and one-half, four, four and one-half and five
per cent interest per annum or maximum allowed, and maj
be made payable to bearer or otherwise. Interest coupons
are always paid to bearer. The debentures of each rate con-
stitute a separate series but all are equally secured by the
mass of mortgages taken and the guaranty funds accumu-
lated by the bank. The borrower has the right to select the
series he wishes for his loan and to repay it in debentures of
the same kind. Debentures are recallable at the wUl of the
bank, but it must retire semi-annually by lot debentures equal
to the amount of the cash in the sinking fund or due to it..

All payments on the principal of loans and the proceeds
from foreclosure sales go into this fund. It is debited with
all defaults of borrowers. The bank must supply any arrear-
age from its own funds or capital stock. Consequently no
dead loans can be used as cover for debentures. Each half-
year the drawing is continued until the total face value of the
debentures retired equals the amount of the items under these
three heads, and thus an exact equilibrium is always main-
tained between the debentures in circidation and loans out-
standing. Beyond this regulation no limit is set to the
amount of debentures which a savings bank may issue against
loans, unless it be a joint-stock company, in which case it can-
not be in excess of ten times the capital stock. It will thus be
seen that the method of operation of the German landschafts
has been adopted for these old benevolent Italian savings
banks ; they do not aim to make a profit out of the borrowers.

144 EURAL CEEDITS

The interest, annuities or principal of loans when due to
a bank cannot be stayed nor delayed by any legal proceeding.
Its mortgages do not have to be refiled every 20 years to keep
"them alive as under the civil code. The public recorder must
perform this service for it free of cost until the end of the
credit period. The bank may declare all the principal of a
loan to be due if there is default in the interest or annuity.
It may recover arrears of an annuity out of the borrower's
personal property by the same process employed by the state
ior coUectiug unpaid taxes, and may resort to summary pro-
ceedings for foreclosure and sale. Its debentures may be
Teceived in pledge as security for loans up to four-fifths their
market value by other land-credit banks, or by any credit
•establishments or the ITational Bank for the same purpose up
"to the limit prescribed in their by-laws. Moreover, the deben-
"tures are lawful investments for the funds of cities, prov-
inces and the state, and of charitable institutions, savings
hanks, and public loan offices, up to nine-tenths of their
market value. They are exempt from levy and sale on exe-
•cution. They are also free from taxes on personal property
vrhen the bank charges them against the borrower. This
prevents double taxation.

The law of 1890 under which the Istituto Italiano di
Credito Fondiario (Land Credit Company of Italy) was
■organized in 1891 is a special act. Its object was to create
■a large central institution by stock subscriptions and absorp-
tion of the mortgage business of the then existing banks.
For this purpose it was granted an exclusive monopoly to
-operate throughout the kingdom for 15 years, while the banks,
as already stated, were compelled to stop making loans out-
side their respective original territories. This monopoly, how-
ever, was taken away in 1894.

The capital stock of this company is $20,000,000, of
"which $8,000,000 has been paid in. The National Bank of
Italy contributed $2,000,000 of mortgages and $1,000,000
in cash towards its foundation; the rest was subscribed by
Italian citizens and foreigners. The capital stock, reserves
-and guaranty fund must all be invested in mortgages. Five

ITALY 14&

per cent of the net profits must go into the reserve until it
equals one-fiith of the paid-in capital; from the remainder
a dividend of six per cent may be declared to shareholders.
One-fourth of the balance goes to the state, one-fourth to
the reserve until it reaches the statutory amount, and the
rest is disposed of as the shareholders may decide at the
annual meeting.

The sole powers- of the company are to grant land credit
and to issue and negotiate debentures to finance its opera-
tions up to ten times the amount of its paid-in capital. The
loans are made in cash, but the interest rate must be the
same as that of the debentures which were issued for raising
the money loaned. The debentures are issued en bloc and
not as each loan is granted; for example, after the company
has made $1,000,000 of loans out of its capital stock, it may
issue debentures for that amount. The profits come from
commissions, which are fixed by the company itself. This
right is allowed all land-credit institutions when the loan is
made in cash and not in debentures, and each has a printed
schedule of such commissions. The Istituto is supervised by
the Minister of Agriculture, Commerce and Industry, and
enjoys no privileges beyond those laid down in the general
laws.

The lowest rate of interest on loans made by the institu-
tions forming the land-credit system is about 4.41 per cent.
The average is perhaps 5 per cent, after taking into account
all costs, charges, and losses on debentures sold below par
when loans are made in debentures. The rate is tending to
increase, however, and some of the institutions are now
issuing debentures only at the highest interest rates allowed
and are calling in those of lower rates. This is due to the
fact that money is becoming dearer in Italy. The 3.5 per
cent debentures of all the institutions are quoted at par
and are as acceptable to the investiag public as government
bonds. The loans are usually for very long terms. Most
of the loans of the Istituto run for 45 to 50 years. The
annuity for the latter period is 6.10 per cent. A fair propor-
tion of the business of all the institutions is rural. They

146 EUEAL CEEDITS

held in 1912 $733,246,124 of the $1,302,480,451 of existing
interest-bearing land indebtedness in Italy.

Much of the land ia Italy owned in large tracts by private
individuals or corporations is occupied under a right called
■"emphyteusis." This is a grant of the possession and use,
subject to the keeping of the land in cultivation and from
depreciation and to the payment of a fixed annual rent either
in cash or kind. This grant or lease is usually for a very
long term and may be perpetual. It is inheritable and may
be sublet upon certain conditions, but the occupants, of
course, cannot seU or mortgage the land. There are hun-
dreds of thousands of such occupants besides ordinary tenants,
and they are unable to obtain loans from the land-credit insti-
tutions by reason of this lack of title.

This situation was remedied by the law of 1887, which
declared that growing crops, stored produce, live stock, im-
plements and buildings, which up to that time were legally
a part of the land, should be considered as movable fixtures
to the extent that tenants by emphyteusis or ordinary lease
could mortgage them for certain purposes to any institution
duly authorized to accord agricultural credit. The mortgage
thus made is a lien on the property, subject to the land-
lord's or landowner's right to the rent for the current year
and the two years before and the one thereafter. If the land
is iQcreased in value as a result of the credit extended, the
lien has precedence, to the amount of the increase, over all
claims of the landlord or mortgages made by him though
prior in point of time. The lien expires unless renewed every
three years.

The institutions which may be authorized to accord agri-
cultural credit are savings, commercial and cooperative banks,
the Monti Frumentarii (public granaries), and associations
of landowners the aggregate value of whose estates is $600,000
or over. These institutions may have renewals filed and
recorded free of charge, while other fees of the recorders and
notaries as well as stamp duties are reduced on their busi-
ness to one-half of the legal rate. They also may resort to
the special processes against delinquent borrowers enjoyed

ITALY 147

by land banks. These privileges are allowed and the tenants'
mortgages are valid only vrhen the loans are made for build-
ing farm homes, barns, fences and storehouses, for drainage,
irrigation and digging weUs, for planting vines and fruit
trees, for dyking and opening watercourses, constructing
roads and preparing land for cultivation, and for such other
objects as the Agricultural Council of the nation may declare
to be proper. The loans must be made in cash as the work
for which they were obtained progresses. A misuse of the
money renders the principal due. The rate of interest must
not exceed a maximum fixed by the Ministers of the Treasury
and of Agriculture, Commerce and Industry. The term can-
not be less than three nor more than 30 years, and repay-
ment must be by instalments or annxiities.

When an institution has been duly authorized to accord
agricultural credit, it may do business with small landown-
ers and cooperative societies as weU as with tenants. After
it has employed one half of its own capital or fund spe-
cially set aside for the purpose in making these agricultural
loans, it may issue debentures to raise further money for
carrying on its operations. The face value of the debentures
in circulation at any one time must never exceed five times
its capital or the amount of the outstanding loans. The
debentures are of two kinds, printed in different colors. Those
issued against mortgages of tenants must have a fixed date of
maturity, while those issued against mortgages of landowners
and obligations of cooperative societies are indeterminate in
duration and are retired by purchase or by drawing lots every
half year to an amount equal to that paid off on the loans.
Both may be made payable to bearer, the first in denomina-
tions of $20, the second in denominations of $40. The Minis-
try of Agriculture, Commerce and Industry supervises all the
institutions through the Agricultural Council.

Licenses under this law have been taken out by many sav-
ings banks and cooperative associations, and also by some of
the agricultural banks (notably in Sardinia and the BasUi-
cata) which have been set up by the Government with the
aid of public funds in central, southern, and insular Italy.

CHAPTER XV

SMAM. HOLDINGS IN GEEAT BEITAIN AND IRELAND

Act of 1908 Enables Government to Take Private Land. — ^Land
Leased in Small Holdings. — County Councils in Charge of Leas-
ing.— ^Procedure. — ^Formation of Cooperative Associations. — ^Land
Court of Scotland. — Land Holders and Small Holders. — ^Work of
Scotch Board of Agriculture. — Four Of&cial Bodies in Ireland.
— ^Large Loans of Board of Works. — Congested Districts Board
in West of Ireland. — Irish Department of Agriculture and Tech-
nical Instruction. — Credit of State Extended by Estate Commis-
sioners for Acquiring Eeal Estate. — ^Progress of Work. — ^History
of Land-purchase Legislation. — Acts Administered by Board of
Agriculture and Fisheries.

The Small Holdings and Allotments Act of 1908 enables
the Government of Great Britain, through the proper author-
ities and subject to certain conditions, to take all the land
■which any individual owns in England and Wales in excess
of 50 acres and to sell or lease it to a farmer or laborer.
This measure is so drastic that many believe that it is
the preliminary step to the complete nationalization of all
lands in the United Kingdom. Several members of the
peerage have already made arrangements to dispose of
vast ancestral estates and convert them into cash, in order
to avoid the loss vrhich might result from a drop in real-
estate values if the Government should become more
socialistic and go extensively into the business of acquir-
ing land for sale or lease to the have-nots on cheap and
easy terms.

Allotments are plots not exceeding one acre. They are
acquired for leasing to agricultural laborers. Small holdings
are par£els of agricultural land of more than one acre and
not more than 50 acres, or, if exceeding 50 acres, the annual

148

GEEAT BEITAIN" AND lEBLAKD 149

return of ■which as estimated for the income tax is not in
excess of $350.

The county councils are charged with the duty of pro-
viding such small holdings for persons who desire to buy or
lease and will themselves cultivate the holdings. Two com-
missioners with expert and practical fcaowledge of agricul-
ture have been appointed by the Board of Agriculture and
Fisheries, under the law, to ascertain the extent to which
there is a demand for small holdings or would be if suitable
lands were available, and to confer with the county councils
to devise plans to satisfy such a demand. If a county council
ignores the recommendations of these commissioners or the
request of six citizens, the Board may compel it to act, under
penalty of paying the costs resulting from its neglect. All
plans for the acquisition of lands, whether made by the coun-
cils or by the conmiissioners, must be passed upon by the
Board, and the expense thus incurred is paid out of a fund
provided by Parliament, if it cannot be otherwise recovered.

Lands acquired for small holdings by a county may be
situated within or without its borders. A county may join
one or more other counties in arranging a plan. If it can-
not acquire suitable lands by agreement with the owners, the
council after due notice may order the desired or needed land
to be compulsorily sold or leased. The order becomes effec-
tive upon confirmation by the Board of Agriculture and Fish-
eries. In case objections are raised the points in dispute are
settled by an arbitrator appointed by tfie Board, who is
allowed to hear neither lawyer nor expert witness unless
otherwise directed. Parks, public grounds, lands used for
public utility or for the convenience or comfort of a dwell-
ing house or farm home, or which are under 50 acres in
extent, cannot be taken by this procedure for the purpose
of creating small holdings. If the order specifies that the
land shall be acquired compulsorily on lease from the owner,
the period must be not less than 14 or more than 35 years.

After a county has bought or leased the land it desires
or needs, either by agreement or by compulsion, it may adapt
it for small holdings by subdividing and fencing, by making

150 EUEAL CEEDITS

roads, drainage or irrigation ditckes, and by putting up such,
buildings as may be necessary to make it suitable for occu-
pancy. The total cost of the acquisition and improvement
of the tract must be so distributed that each smaU holding
created out of it shall bear its proportionate share. But no
county may incur any expense or obligation in carrying out
its plans which would raise the annual tax rate more than a
penny in the pound.

As soon as the tract has been cut up into small holdings
and each duly registered, the county must proceed to dispose
of it. The conditions of tenure are that the occupier of each
holding shall keep it in a good state of cultivation, and will
not allow intoxicating liquors to be sold or more than one
dwelling house to be erected thereon. The holdings may
be sold in fee if the county bought the tract by agreement
but if the tract was acquired on lease or by compulsory sale,
only subleases not to exceed 35 years are lawful. The sale
or sublease may be to individuals, or to groups of individuals
working on a cooperative basis, or to associations formed for
the creation and development of small holdings and so orga-
nized that profits are prohibited or restricted. The purchase
prices or rents must be fixed sufficiently high to guard the
county against loss.

For each small holding sold outright by the county, the
purchaser must pay not less than one-fifth of the price in
cash; one-fourth may be secured by a perpetual rent-charge
redeemable in the- manner provided by the English laws ; and
the balance may be secured by mortgage, to be paid off half-
yearly in instalments of principal and interest or by a ter-
minable annuity. The longest credit which a county may
allow on such a sale is 50 years. The borrower may dis-
charge his debt in advance, or he may be accorded a renewal
not exceeding five years.

Each county is required by the law to appoint and main-
tain a committee consisting in whole or in part of members
of the council to attend to all matters relating to small hold-
ings. One of the objects of the committee is to promote
the formation of cooperative associations among the occupiers

GKEAT BEITAIN AND lEELAND 151

of the holdings, for banking, insurance and all agricultural
purposes. Counties may make grants or advances to such
associations or guarantee advances made to them. The coim-
ty may also assist any individual tenant to buy a farm of
the size of a small holding, situated within its borders, by
lending on mortgage four-fifths of the purchase price agreed
upon with the landlord.

There are 8,300 county councils and local authorities in
England and Wales to which the Small Holdings and Allot-
ments Act applies, but up to 1913 only 3,000 had taken ad-
vantage of it. These had acquired 154,977 acres, of which
about two-thirds was purchased and the rest held on lease.
Only a small portion had been resold. The great majority of
the small holders are sublessees. The amount which has been
borrowed by the counties for the purchase and adaptation of
these lands exceeds $13,250,000.

In Scotland, since 1912, the relations between small ten-
ants and owners of agricultural lands may be established by
judicial proceedings instead of by private contract, if either
of the parties so desires. For this purpose a law of 1911
created a special Land Court, composed of five members ap-
pointed by the Crown upon recommendation of the Secretary
for Scotland, and a Board of Agriculture, composed of a
chairman and two commissioners also appointed by the Crown
upon recommendation of the Secretary for Scotland.

A smaU tenant is one with a holding the annual rental
of which does not exceed $250 or, if exceeding that rental,
is not over 50 acres in area. Such a tenant under the Scottish
law may be either a landholder or a small holder. A tenant
is designated as a landholder if he or his predecessors in the
same family erected the buildings and made the other im-
provements or the larger part thereof on the holding with
their own money and labor; and as a small holder if the
larger portion of the money and labor therefor were furnished
by the landlord.

A landholder who was such at the time the law of 1911
was enacted has the right to perpetual occupancy of his
holding. Should the tenure be cancelled for any reason, he

152 EUEAL CKEDITS

must be compensated for the buildings and improvements,
and all his rights descend to his heirs or to that member of
his family to whom he wills them. A small holder, of course,
has no interest in the buildings and improvements, but he
has the right to continuous renewals of his lease on the
terms in force at the time the law was enacted, and the right
passes to his heirs or may be willed to any of them. If the
landlord allows the improvements or buildings to get out
of repair, the small holder may be declared a landholder.

All matters in dispute between landlords and landholders
and small holders are determined by the Land Court, whose
decision is final as regards the facts. Questions of law may
be carried to the Court of Sessions, without further appeal
to the House of Lords. But the Land Court has exclusive
jurisdiction over the rents; it may raise or lower them to
whatever figure it deems fair and the landlord must abide
by its decisions. The case for the tenants is attended to by
the Scotch Board of Agriculture, which selects one of its
members as a special commissioner for small holdings for this
purpose.

The Scotch Board of Agriculture is charged with the
general duties indicated by its name. In addition to adjust-
ing the rights of tenants on lands occupied at the time the
law of 1911 was enacted, the Board is empowered to enlarge
small holdings and to acquire estates for subdivision and allot-
ment to small holders. If the land desired cannot be obtained
by contract the Board may acquire it compulsorily by pro- '
ceedings before the Land Court. But it cannot entirely ex-
propriate the owner or divest him of his title, as is permitted
in England and Ireland. All the Scotch Board can do is to
compel the owner to turn over his estate to be prepared and
subdivided for small holdings, and to accept as tenants those
persons to whom it allots the holdings at the rents deter-
mined by the Land Court.

The Government has appropriated about $1,000,000 a
year to be used by the Scotch Board of Agriculture for carry-
ing on its work. This fund is expended in preparing and
allotting estates for small holdings; it may be employed also

GEEAT BEITAIN" AND lEELAND 153

in making loans to public authorities for that purpose, or to
small holders for erecting buildings and fences. To public
authorities the Board advances no more than three-fourths
of the expense. Loans made to individuals for erecting build-
ings are repayable within 50 years by instalments at the rate
of one dollar per annum for every $25 borrowed. This in-
cludes interest, payment for amortization of the principal,
and the premium on insurance. Loans granted for fencing
are repayable within seven years. A mortgage upon the
entire right of the tenant in the holding is taken as security.

The procedure for enlarging a small holding is similar to
that for acquiring estates for subdivision, except that no
compulsory step may be taken against the owner, nor can the
tenant request the services of the Board until he has first
applied to his landlord and been refused. Ko small holding
obtained through intervention of the state in Scotland may
be mortgaged or sold by the occupier.

In Ireland, long-term loans, besides free grants, are made
by the state for agricultural purposes, through four officiah
bodies, the Board of Public Works, the Congested Districts!
Board, the Department of Agriculture and Technical In-|
struction, and the Estates Commissioners. The loans are |
usually secured by a charge or mortgage on real estate, but |
in some cases personal security may be taken or no security/
at all may be required. -^

The Board of Works was established in 1831. During its
long career it has advanced large amounts to farmers for
the purposes which it was organized to promote, namely,
drainage, subsoiling, trenching or otherwise deepening or
improving the soil, irrigation and warping, embanking from
rivers and tidal waters, building and repairing fences, mak-
ing farm roads, clearing away rocks and stones, reclaiming
wastes, planting trees, erecting or improving farm offices,
farm dwellings and laborers' cottages, and the erection of
mills for scutching flax and the construction of dams, weirs
and watercourses for supplying them with water.

Borrowers may be landowners or tenants: if tenants of
leaseholds, the annual value of their holdings must be over

\54 EUEAL CEEDITS

$58 ; if tenant-purchasers, it must be over $34. Tenants from
year to year, that is, the most necessitous class, cannot be aided
by the Board of Works. Loans to landowners must be for sums
not less than $500, except for erecting farm buildings, when
they may be for $250. In the case of tenant-purchasers,
loans must not exceed five times the annual value of the hold-
ings. In the case of tenant-occupiers, no loan may be granted
for less than $175 or for more than $5,000. In ordinary
circimistaiices a loan will not be granted to such occupiers for
a greater sum than three times the annual value of the
land. A mortgage on the land to be improved is always
required as security for a loan from the Board. The money
is advanced as the work progresses in sums equivalent to the
amount proved by the borrower to have been expended on
the land. Eepayment is usually by an annuity of 6.5 per
cent rimning for 22 years. In 1913 about $530,450 was ad-
vanced by the Board of Works, of which 97 per cent was for
the erection of farm buildings and cottages.

The Congested Districts Board was established in 1891 for
the purpose of dealing with the special economic problems of
the poor western districts of Ireland. The Board possesses
wide powers and discretion for taking such steps as it deems
proper for aiding migrants, or emigrants from congested dis-
tricts, increasing the size of holdings, and developing agri-
culture by improving the breed of live stock and methods of
cultivation, by both direct and indirect means. The Board
has been left practically imfettered by law as to the method
of expending the appropriations intrusted to it, which now
amoimt to $1,124,162 annually. Of this amount $100,000
is disposed of each year in free non-repayable advances, and
the rest is employed largely in purchasing and improving real
estate for subdivision and resale. The credit operations of
the Board are insignificant, amounting to only $29,866
in 1912.

The Irish Department of Agriculture and Technical In-
struction upon its establishment in 1899 took over some of
the functions of the Congested Districts Board, and will
eventually replace it in all agricultural afEairs. The Depart-

GEEAT BEITAIN AND IKELAND 155

ment may make loans to individuals for any agricnltural pur-
pose. The total amount loaned in 1913 was $58,705. Nearly
one half went for the purchase of bulls; the remainder was
loaned for fencing, the purchase of farm implements and
stallions, and the financing of agriciiltural cooperative credit
societies. The Department has advanced $535,000 to date,
but very little of it was in the form of loans secured by real
estate. The only instances in which real-estate security has
been taken have been loans for the erection of village halls
and for equipping and repairing mills for scutching flax.

The Estates Commissioners, who number three, appointed
for life by the Crown and charged with carrying out the
provisions of the Land Purchase Acts, is the greatest body
not only in Ireland but in the world for using the aid and
credit of the state for the purpose of enabling farmers to
acquire real estate. The Estates Commissioners have power
to sanction the expenditure of public funds not only on works
for the improvement of land and the erection of buildings
but also in the purchase of livestock, seed and farm imple-
ments. These expenditures, however, are all confined to the
lands purchased by the Estates Conamissioners for resale to
peasants. The prime purpose of the Estates Commissioners
is to bring about by agreement or compulsion the transfer
of the ownership of the land in Ireland from the large pro-
prietors to the peasants who occupy and cultivate it. Already
they have effected a change of title to two-thirds of the agri-
cultural land, committing the British Government to obliga-
tions amounting to hundreds of millions of dollars.

Four-fifths of the inhabitants of Ireland are farmers or
engaged in agricultural pursuits. Practically all farmers are
now owners of the farms they till or else are occupying them
at fair rents judicially fixed. None of these farms is over 30
acres in area, while the majority are under 15 acres with
many ranging between one and five acres. The long struggle
of the Irish tenants against their landlords is ended, and
the bitter hatred engendered by generations of oppression and
reactive violence is being forgotten.

The land-purchase legislation, to which this betterment

156 EUEAL CEEDITS

of rural conditions and content are due, comprises a series
of acts covering a long period of years. In 1869 the Irish
Church Act enabled occupiers to buy glebe lands, the state
advancing three-fourths of the purchase price to be repaid
by an annuity of four per cent in 32 years. The act of 1870,
giving the tenant the right to dispose of his interest and to
receive compensation for his improvements, contained clauses
which authorized the Government to promote land purchase
by advancing two-thirds of the purchase price to be repaid by
an annuity of five per cent in 35 years. These, however, were
sporadic attempts inadequately financed, and only 6,750 ten-
ants acquired title to their holdings thereby.

A clearly defined policy of a national character in respect
to the land was not adopted for Ireland by the British Govern-
ment until 1881. In that year Gladstone made a bold effort
to adjust matters on an equitable basis by the Land Law
(Ireland) Act, giving the tenants the right to have their rents
fixed judicially and refixed every 15 years and to sell their
holdings if they so desired. The Government undertook also
to advance three-fourths of the purchase price or one-half
of the "fine" to acquire a "fee farm" tenure to tenants who
were able to acquire their holdings by agreement with their
landlords. A Land Commission was appointed to carry out
this measure. In 1885 the Land Commission was empowered
to advance the entire purchase price provided a deposit was
made to guarantee the payment of the first one-fifth, and
$25,000,000 was appropriated for loans to tenants. In 1891
the Government began to issue "guaranteed land stock" for
making these purchases. This stock bore 2% per cent interest
per annum, but the Treasury was authorized to issue 2^ per
cent stock as soon as $50,000,000 of the first kind had been
issued. An annuity of four per cent for 49 years was re-
quired from the purchasing tenant. One-fourth of one per
cent of the annuity went into a guarantee fund which was
allotted among the various counties. Advances for purchas-
ing holdings in any county were limited to 35 times its share
in the guarantee fund, if defaults in the payment of annui-
ties could not be covered by this fund, the deficiency was

GEEAT BEITAIN AND IRELAND 157

made good by a levy on the eonaties. In 1896 a number of
amendments to the law were made respecting the fixing of
rents^ while the method of calculating the annuity was
changed. The one-fourth of one per cent set aside for cre-
ating the guarantee fund was applied to the reduction of
the tenant's debt, and an extra percentage which the tenants
had been required to pay on the 49-year loans for the first
five years as an insurance against defaults was altogether
abolished.

By virtue of the operation of these laws, a large portion
of the land in Ireland by 1903 had passed over to the ten-
ants or was held by them at fixed fair rents. The landlords,
realizing that their absolute tenure was doomed, were begin-
ning to prefer to sell their estates to remaining mere pen-
sioners or receivers of rent at rates to which they were forced
to consent. The tenants, on the other hand, were discon-
tented wherever they could not acquire complete control, and
in that year the Irish Land Act was enacted to put the
finishing touches on the Irish land-purchase legislation. This
act reconstructed the Land Commission and provided for the
establishment of the Estates Commission, placing $500,000,-
000 at its disposal for making loans to tenants, in addition
to giving $60,000,000 as a free grant to enable tenants to pay
the first one-fourth of the purchase price which was required
to be paid in cash. The Estates Commission is empowered to
acquire lands compulsorily when offers made by it are re-
fused, and also on request by the Congested Districts Board
when that body is unable to acquire by agreement the land
desired. In 1909 the annuity of the purchasing tenants was
fixed at 3% per cent per annum, and the period for the
extinction of the loans was extended from 49 to 68% years.

The number of agricultural holdings in Ireland was found
by the census of 1911 to be 535,675. Up to March, 1913,
applications to have "fair rents" fixed had been allowed for
455,000 of these holdings. As regards sales, if one person
be reckoned for every loan, over 240,000 occupiers have been
made owners in fee, under the laws, of over 8,000,000 acres
of good agricultural lands. Including the bonds which have

158 EUEAL CEEDITS

been issued, the sums guaranteed, advanced or promised by
the state amount to $622,404,180. This stupendous ajnount
will have to be increased to over one billion dollars if the
plans which have been devised to make all Irish tenants the
actual owners of the lands they occupy are carried to com-
pletion. The state's credit has been pledged on all land
stock or bonds which have been issued, but as only a few
defaults have been made by borrowers, it has not suffered
much loss.

Besides the laws enumerated, the aid and credit of the
state for land improvement in Great Britain and Ireland
have been pledged by a number of acts which date back many
years, the administration of which is now entrusted to the
Board of Agriculture and Fisheries. The earliest of these
land-improvement acts were those passed between the years
1846 and 1856 for appropriating and lending public moneys
to facilitate works of drainage on the security of the lands
benefited thereby. The Act of 1846 empowered the Treasury,
on application of the Inclosure Commissioners (now the
Board of Agriculture and Fisheries), to advance for such
works sums not exceeding $10,000,000 in Great Britain and
$5,000,000 in Ireland. Further advances to the amount of
$10,000,000 for Great Britain and $1,000,000 for Ireland
were made by the act of 1850. The landowner who applied
for a loan under these acts had to file with his application a
description of the land, the muniments of title, a plan of the
proposed works, and an estimate of their cost. If approved
by the Commissioners, a provisional certificate was issued to
the landowner declaring that when the works had been prop-
erly executed, the necessary sum would be advanced for the
cost of the works and incidental expenses. Then, if no one
having any estate in or charge on the land presented a valid
dissent, when the commissioners were satisfied that the works
were duly carried out, they issued a final certificate and an
order for granting the loan. After the money had been
turned over, the land became charged with the payment to the
Crown of a rent charge at a rate sufficient to extinguish the
debt at the end of 22 years. These acts required that the

GEEAT BEITAIISr AND IRELAND 159

works should be capable of being finished within five years,
and limited the advances to any one landowner to $25,000.
The landowner could assign his certificate to any person
agreeing to advance the money, and the latter was entitled to
receive the advance from the Treasury. Money borrowed
from other persons or by the landowner himself could be
made a charge on the lands improved, while the works and
the Hen for them could be extended over adjacent lands for
making outfalls and opening drains and watercourses. All
appropriations under these acts have been exhausted.

These acts provided also for the incorporation of the
General Land Drainage and Improvement Company for
England and Wales; the Lands Improvement Company for
England, Wales and Scotland; the Scottish Draiaage and
Improvement Company, for Scotland alone; and the Land
Loan and Enfranchisement Company for England, Wales,
Scotland and Ireland. The organization, objects and powers
of these companies for their respective territories are sub-
stantially the same. They were empowered to make loans for
drainage, irrigation, embanking, enclosing and reclaiming,
the making of farm roads, and the construction of farm
buildings, mills, and hydraulic works for farm purposes and
cultivation. They were given as security for their loans a
charge imposed by law on the lands so improved, which for
the company first mentioned might run for 31 years for build-
ings and 50 years for other improvements ; for the other com-
panies the period might not exceed 40 years.

In 1864 these acts were consolidated and so amended
as to enable landowners of limited interests to charge their
lands with money subscribed for the construction of rail-
ways and canals. Such a landowner desirous of borrowing
or advancing money, according to the amended act, must
file his application in the usual way, showing that the use of
the money so subscribed will permanently increase the value
of his lands. If approved by the Board a provisional order
is issued which names the landowner, the maximum sum to
be charged, the rate of interest, not to exceed five per cent,
and the term for repayment, which may not exceed 40 years.

160 EUEAL CEEDITS

The order becomes final upon completion of the works, and
the landowner may assign the charge created thereby either
absolutely or by way of security to one of the improvement
companies or to any one who may agree to advance the money
subscribed towards the building of the railway or canal or for
any of the other authorized improvements. The order cre-
ating the charge is never granted unless it be shown that
the improvements will effect a permanent increase in the
yearly value of the land exceeding the annuity or amount
proposed to be charged on it. This requirement as to in-
creased yearly value does not apply, however, in the case of
loans for prom.otiag cultivation. The Board may extend the
period of repayment of improvement charges in certain cases
not sooner than seven and not later than ten years from the
date of the order creating the charge.

The improvements mentioned by the early laws were all
of an agricultural character, but the list has been extended
by recent acts so as to include the building of laborers' cot-
tages, mansion houses, and various other objects not agri-
cultural. The total of the amounts raised on the security
of charges created by these acts amounted in 1910 to $91,-
938,594.

CHAPTEE XVI

AUSTEIA-HUNGAET, EUSSIA, AND THE BALKAN STATES

Provincial Mortgage Institutions of Austria. — Their Loans. — ^History
of These Lastitutions. — ^Land Credit in Hungary. — Hungarian
Eoden-Kredit Institut. — Administration. — National Land Credit
Institute for Small Holders. — ^National Federation of Hungarian
Land Credit Institutions. — Land Credit Institute at Nagy-
Szeben. — ^Large Eussian Projects. — Colonization of Siberia. —
— Peasant's State Land Bank. — Distribution of Land to Eman-
cipated Serfs. — Operations of the Bank. — ^Work of the Land Com-
missioners.— Aid for Home Colonization in Finland. — ^Eural
Banks of Communes. — Mortgage Society of Finland. — Territorial
Credit in Livonia, Esthonia, and Courland. — Government Con-
fiscation of Nobility's Estates in Eoumania. — ^Landschaft Sys-
tem and Eural Bank. — Bond and Mortgage Institution of Servia.

Theee are provincial mortgage institutions in all but
two of the crown provinces of Austria. These concerns have
neither capital stock, shareholders, nor members. They are
simply bureaus or departments in the provincial administra-
tions, managed by the public authorities. They extend credit
on both rural and urban properties, and to the state, prov-
inces, municipalities, and public corporations empowered to
extend such credit. But their chief object is the lifting of
burdensome encumbrances on farm lands and converting
them into easy long-time contracts at a low interest rate.
No profit is aimed at.

The loans are made not in cash but in debentures, but
the borrowers are not jointly and severally liable as in the
old German landschafts. The security for these debentures
comprises, first, the mortgaged properties, then certain re-
serves and funds, and finally the guaranty of the issuing
provinces. There is, of course, no mortgage security for the

161

163 EUEAL CEEDITS

commimal debentures. The debentures are made payable to
bearer, to be redeemed ■within certain long periods, and may
be recalled by the province at any time. No limit is set for
the amount which may be issued, except that it must not
exceed the amount of the outstanding loans. Debentures ard
withdrawn by lot or purchase as the loans are paid off. Bor-
rowers may use them at their face value in making payments,
and they are lawful investments for the funds of municipali-
ties, districts, corporations, churches, charitable and public
establishments, and trustees. They may be deposited also
to secure the fidelity bonds given by public officials and em-
ployees.

Only amortizable long-time loans are granted. Most of
them run from 30 to 60 years; the average is 54% years,
extinguished by an annuity of 4^^ per cent. The rate of in-
terest is now four per cent in most provinces. The interest
for the past 20 years has not been five per cent over that
figure. Besides the interest rate on the debentures exchanged
for his mortgage and the annual instalments on the principal
of the loan, the borrower must pay one-fourth of one per cent
toward working expenses and the reserve. In institutions in
which the reserve has reached five to ten per cent of the de-
bentures in circulation, this latter charge is reduced, or omit-
ted during the first ten years of the loan. In many provinces
it is done away with altogether for poor persons. Borrowers
may make repayment in cash at any time, but six months'
notice must be given for repayments by debentures. After
loans or any parts of them have been repaid, the corre-
sponding debentures, which have been purchased or retired
by lot, are destroyed.

The first of these Austrian provincial mortgage institu-
tions was founded in 1865, and the last in 1869. The Galician
Boden-Kredit Verein may be mentioned in connection with
them. This institution was founded in 1841 for large estates
in Galicia and Bukowina as a landschaft of the old German
style, and members are jointly and severally liable on its
debentures. These institutions hold 21 per cent of the mort-
gage loans granted by public concerns in Austria.

AUSTKIA, KUSSIA, AND BALKAN STATES 163

The organization of land credit in Hungary began in
1767, when Maria Theresa had a survey made of manorial
estates and placed the serfs under the protection of the Ur-
barial Court, upon which she conferred the exclusive power
of dispossessing the serfs and of fixing the size of the hold-
ings which they might possess. The serfs were known as
"urbarians." Alongside of them arose another class of ten-
ants called "curialists" or "contractuaJists," because of the
fact that their right of possession rested upon contracts with
their noble landlords. The curialists paid head tax but not
the land tax; the urbarians paid both. In 1848 compulsory
labor, tithes and dues were altogether abolished and the ur-
barians were made freeholders. The curialists then thought
that they should hold possession of their holdings without
fulfilling their contracts, and indeed many were allowed to
do BO, the nobles having been intimidated by the agrarian
troubles in 1846 when the serfs in Galicia rose and massa-
cred their landlords. Fiually, however, the Government
adopted the practice of taking over large estates wherever
agrarian troubles were acute, and parceling them out to the
peasants, giving the landlords bonds by way of compensa-
tion.

This change completely revolutionized agricultural con-
ditions. The peasants who formerly were content with six
to ten cents a day demanded five times that amount or else
refused to work. Labor became scarce. The Turkish wars
increased the general impoverishment, and landowners, espe-
cially the extravagant nobles, were unable to pay their taxes
or even to obtain a living from their farms. In 1857 the
National Bank of Austria tried to render assistance, but did
very little good because land registers were kept inaccu-
rately and mortgages were unsafe. Consequently, most of the
landlords were forced to the necessity of selling the bonds
which they had received from the state at a very heavy dis-
count, while many of them could not obtain credit at all even
at the ruinous rates then prevalent. In 1858 George Mailath
addressed a circular to the principal landowners of the coun-
try, calling attention to their needs and mgiag them to estab-

164 EUEAL CEEDITS

lish a land bank on plans which he had formulated partly
on the German landschaft model. A sufficient number hav-
ing responded to his call, a bank called the Hungarian Boden-
Kredit Institut of Budapest was organized on July 1, 1863.

The Hungarian Boden-Kredit Institut, or Land-Credit
Institution, was not organized for gain. It was founded by
209 noble landowners inspired by patriotic motives. Its capi-
tal of $821,730 was created by a contribution of $245,000
from the state and $576,730 subscribed by the founders. The
smallest share was $2,450, and each founder paid for his
share by giving one-tenth of its face value in cash and nine
equal 'notes for the balance. The last of these notes were
redeemed in 1876 and returned to the founders, but the cash
is still retained and draws five per cent interest a year.

The chief authority in the Institut is the founders' assem-
bly, composed of the founders and their successors, in which
no person has more than one vote or may hold more than nine
proxies. Twenty founders representing at least 30 votes con-
stitute a quorum. Under this body is the general assembly
of the borrowers. Those who have received loans of $24,500
or over have one vote each, but no more. Those who have
received loans under that amount must group themselves by
districts and may send to the general assembly one delegate
for every $196,000 of loans. All borrowers become members.

The administration of the Institut comprises a board of
directors, a committee of supervision, and the usual staff of
officers. The board of directors consists of a president elected
for three years at an annual meeting of the general assembly
and chosen from among three persons proposed by the foun-
ders' assembly, and at least three and at most five other
members chosen by the committee of supervision. Persons
not members of the Institut may be elected to serve on the
board. The committee of supervision consists of 36 mem-
bers, one half of whom are chosen by the general assembly
and one half by the founders' assembly. A portion of them
are renewed at regular intervals.

The board is the executive head of the Institut, but at
least three of the supervisors must attend the board's meet-

AUSTEIA, EUSSIA, AND BALKAN" STATES 165

ings when loans are being considered, and no loan may be
granted unless a majority of the attending supervisors con-
sent thereto. The committee of supervision watches over
all other affairs, prepares the annual report, and has such
other high functions that it is practically the ruling power.
Local committees of borrowing members act as agents and
guard the interests of the Institut in the provinces. The
by-laws may be amended or the Institut itself dissolved by
the general assembly, but only upon a proposal submitted by
the founders' assembly, which is convened by the board of
directors. No resolution of this nature, however, has any
effect until approved by the Hungarian Government. A spe-
cial commissioner appointed by the Government is charged
with the duty of seeiag that the Institut observes the laws
and conducts its business in a satisfactory way. He must
countersign the annual report, may attend all meetings of
members and officers, and is empowered to set on foot what-
ever investigations he deems advisable.

The objects of the Institut are to grant loans to indi-
viduals and cooperative associations on the security of rural
properties, to finance land improvement and reclamation
projects, to receive deposits, to do commercial banking, and
to purchase mortgage loans made to small holders by the
cooperative credit societies affiliated with the Hungarian
Central Society for Cooperative Credit described in a later
chapter. The Institut operates entirely in the interest of
borrowers, an^ for this reason the Government has granted
it special privileges by exempting it from taxes on business
done and from stamp duties and by recognizing its debentures
as legal investments for trustee funds. The debentures is-
sued on land-improvement projects are non-taxable. Sum-
mary proceedings may be resorted to against debtors in
default.

Except in the ease of the mortgages of small homestead-
ers, the minimum for loans is $4,900. The majority of loans
actually granted are for sums of less than $24,500. Long-
term loans are subject to obligatory amortization and are
made in debentures according to the German landschaft plan.

166 EUEAL CEEDITS

Consequently, the rate of interest on the loan as well as its
length depends upon that of the debentures. The borrower
has the right to choose debentures of the rate and term he
wishes among those issued. In 1895 the Institut issued 3.5
per cent debentures redeemable in 63 years by an annuity of
4 per cent from the borrower, but these were never quoted at
par, and the lowest now issued are four per cents. In addition
to the interest and yearly instalment on his loan the bor-
rower must pay 0.06 per cent into the reserve and one per
cent into the guaranty fimd. The latter is returned in full
after the debt is finally paid, if no losses have occurred. At
present the borrower pays no commission for the sale of his
debentures nor any contribution toward working expenses,
although the Institut is authorized to make these charges.
In 1912 the amounts due to the Institut, including loans
made for land-improvement and reclamation projects, ex-
ceeded $119,000,000, against which about $100,000,000 of
debentures were in circulation. Members, that is, borrowers,
and the founders are collectively liable on these bonds. In
1883 the state borrowed $1,713,000 and so became a member
of the Institut. One per cent of the net profits must be de-
voted to some agricultural object of a public nature. The rest
is used for increasing the capital. This with the reserves
gives the Institut (1910) a working fund of its own exceeding
$10,000,000.

In 1879 the National Land Credit Institute for Small
Landowners of Hungary was founded at Budapest on prac-
tically the same lines as the Boden-Kredit Institut and en-
dowed by the state with $245,000 free of interest. There
are, however, some material points of difference. Founders'
shares in the new Institute are $49, $245 and $2,450, and
draw five per cent dividends. These shares will begin to be
paid back when the reserves reach $1,470,000. Each founder
is entitled to as many votes as he has $49 shares. Ordinary
members, that is, borrowers, have one vote for each group
representing $122,500 of loans. There is no special founders'
assembly, the chief power in this institution being lodged
in the general assembly of the members to which the founders

AUSTEIA, EUSSIA, AKD BALKAN STATES 167

also belong. The management is entrusted to a president
and vice-president, assisted by three advisors, who constitute
the board of management, and to a committee of nine vfhose
duty it is to examine the accounts. Both bodies are elected
by the general assembly.

This institution for small holders has the same privileges
and powers which were conferred upon the older Institut,
with the exception that its business is confined entirely to
granting real-estate credit in small amounts. The smallest
loan is $73.50, and none can exceed 50 per cent of the value
of the mortgaged land. They are made either in cash or
debentures. The interest rate is now usually four per cent,
in addition to which the borrower pays one-fourth of one
per cent toward cost of business, and one per cent for amorti-
zation, or a total of 5.25 per cent to extinguish the loan in
50 years. The Institute lends on mortgages assigned to it
by the Hungarian Central Society for Cooperative Credit
and is very active in aiding home colonization and iu dis-
mortgaging the land. At the end of 1912 its outstanding
loans amounted to approximately $54,390,000, founders'
shares $2,082,500, and reserves $3,756,585. These loans and
funds, together with the joint and several liability of the
founders and members, that is, borrowers, are the security
for the debentures.

The latest step taken by the Hungarian Government to
help the poorer agricultural classes was the creation in 1911
of the National Federation of Hungarian Land Credit Insti-
tutions. The principal objects of the Federation are to take
over the management of large estates and allot and sublease
them to small holders; to assist such persons to acquire or
improve small holdings, particularly those who are members
of the cooperative societies afiBliated with the Hungarian Cen-
tral Society for Cooperative Credit; to effect the conversion
of existing burdensome encumbrances into mortgages on easy
terms; to acquire pastures for the common use of farmers;
to construct dwellings for agricultural laborers ; and generally
to carry out the policy of the Government in respect to land.
The Government endowed it with $1,960,000, required the

168 EUEAL CEEDITS.

Boden-Kredit Institut, the National Land Credit Institute
for Small Holders, and the Hungarian Central Society for
Cooperative Credit to subscribe $1,715,000 toward its capital,
and turned over $2,450,000 of valuable securities as a guar-
anty fund for its debentures. Its membership is open only
to the state, these three institutions, and such individuals as
may subscribe to founders' shares of $34,500 with dividends
limited to four per cent. No individuals have yet subscribed.

The Federation enjoys the same privileges as those pos-
sessed by the Hungarian Central Society for Cooperative
Credit, but it is much more intimately connected with the
Government. The president and two members of the board
of directoi-s are appointed by the Minister of Finance, the
vice-president and another member of the board by the Min-
ister of Agriculture. The members so appointed are selected
from the respective departments of these ministers, and they
may stop any act of the management until passed on by the
Government. All plans relating to the purchase and leasing
of estates or the sale of land are subject to the approval of
the Minister of Agriculture, while questions regarding the
issuing of debentures and the methods of granting credit are
determined by the Minister of Finance.

Another mortgage-bond concern based on the joint and
several liability of borrowers in Hungary is the Land Credit
Institute at Nagy-Szeben. Its peculiarity lies in the fact
that the holders of the debentures are allowed to be repre-
sented at the meetings of the members and have one vote for
every $4,900 of debentures in circulation.

When we turn to Russia, the magnitude of the homestead
and small-holdings projects of Eussia makes those of all
other nations except Great Britain sink into insignificance.
Hundreds upon hundreds of thousands of Eussian farmers
have acquired millions of acres worth billions of dollars by
means of money and credit facilities siipplied by the Govern-
ment. The Government's projects, which began with the lib-
eration of the serfs, comprises the colonization of the public
domains in Siberia, the redistribution of the myriads of plots
of the peasantry of European Eussia, and the increase of the

AUSTEIA, EUSSIA, AFD BALKAN STATES 169

area of agricultural lands held in fee simple by those who
cultivate them.

The colonization of Siberia is conducted by the Internal
Emigration Service. This has an annual appropriation of
$13,875,000, out of ■which homesteaders are granted loans and
free transportation when necessary. More than 3,000,000
persons have gone into Siberia, one half of them in the three
years between 1907 and 1910, and the number is now so
large that the Service with its 3,000 officials is unable to cope
with the situation. At least 700,000 of the emigrants are
working as day laborers while awaiting their allotments
(1910).

The two other projects are conducted by the Peasants'
State Land Bank acting in conjunction or in harmony with
district, regional and provincial land commissioners. These
are public bodies composed of members in the main selected
from official life. The lower commission is subordinated to
the higher, and all are subject to the control of the Agricul-
tural Land Commission at St. Petersburg, which serves as
a court of last instance in matters withia their jurisdiction.
The Bank, which is the largest land-credit institution ia the
world, is the financial organ of the Government in its land
policies. It was originally founded to help ex-serfs only.

The emancipation of the Eussian serfs on the crown lands
occurred on June 20, 1858, on the feudal estates February
19, 1861, and on the public domains January 18, 1861. All
the serfs were given the right to acquire enough land to live
on. The regulations concerning these allotments were pro-
mulgated for the first two classes in 1863 and 1866, but
for the last class not until 1891. The regulations are not aU
alike but generally each ex-serf was granted a piece of land
equal in size or area to that which he occupied at the time
of his emancipation. In this way 22,396,069 ex-serfs came
into the possession of 315,508,108 acres, an acreage greater
than that of the cultivated lands in Germany, France and
England combined. The total value of these lands exceeded
$1,030,000,000. It was turned over, however, not to the ex-
serfs directly but to the mirs, or counties, in which they were

170 EUEAL CEEDITS

located, and these counties were entrusted with its distribu-
tion and were made responsible for the payment of the an-
nuities.

It took years, of course, to make this distribution, and in
the meantime the undistributed land was held in common,
with title in the county, and aU peasants therein were collec-
tively liable for the annuities due the Crown and state. The
peasants were forbidden to seU or otherwise dispose of their
allotments. The parceling of the lands was badly done.
Each peasant wanted a little woodland, a water right, a gar-
den patch, a farm and a place in which to live in his village.
Many a peasant had 50 to 100 plots, and the average was 20
plots for each, of which the area was between 24.71 and
165.57 acres in most counties. This led to poor farming
and most of the peasants were unable to pay their annui-
ties. Those who had acquired ownership, either from the
counties or noble landlords, were becoming mere tenants at
rack rent, and their plight was worse than under their former
bondage. These conditions acted adversely on agriculture to
the damage of the nation, so the Government resolved to in-
tervene in order to assist the ex-serfs in redeeming their
land from its burden of accumulated and running charges,
and also to help those who had lost their holdings to recover
them. The Peasants' State Land Bank was the result.

The Bank was established in 1882 and opened its doors
in 1883 with an annual subsidy of $2,575,000. It is owned
and operated by the state, and its objects, which have been
extended from time to time, are now to make loans to indi-
vidual farmers, to associations of three or more farmers, and
to counties, and to purchase agricultural lands to be subdi-
vided, allotted, and sold on mortgage to farmers. Purchases
of this kind are not made in cash. The bank gives the owner
of a desirable tract which he is willing to sell certificates, or
rather shares, drawing four per cent interest, which may be
converted into a book of notes and coupon bearing six per
cent interest, the principal to be repaid in ten equal instal-
ments after the sixth year.

At the beginning of 1911 the Bank had 14,537,812 acres

AUSTEIA, EUSSIA, AND BALKAN" STATES 171

in its possession, the larger portion having been sold to it
by nobles or large proprietors alarmed by the agrarian trou-
bles of the preceding few years. "The latent agitation," says
the Bank's report, "which in the last six months of 1905 de-
generated into acts of violence, caused a panic among land-
owners. Agitators instigated the rural population to aggres-
sion. Landowners were driven from their estates. Plunder,
destruction of livestock and implements, incendiarism, and
the devastation of forests, to which the peasants openly
abandoned themselves, together with their refusal to work,
rendered the management of the estates impossible. . . . The
peasants were waiting for the division of land announced by
the revolutionists, and private investors were afraid to place
their capital in the land." So the Bank took over this enor-
mous acreage to save it from falling into the hands of specu-
lators. Between 1906 and 1910 the Bank subdivided and sold
to farmers 4,041,789 acres for $92,700,000.

The Bank lends only to enable gentile Eussian farmers
to acquire or improve farm lands. Jews and aliens are ex-
cluded. The farm must not exceed 56.7 acres. Loans must
be secured by first mortgage on the property thus allotted or
bought or intended to be improved. They may equal 90 or
even 100 per cent of the value of undivided lands to individ-
uals, but for associations and counties the limit is set at 80
or 85 per cent. Pour periods are allowed for the extinction
of the debt : 13 years by an annuity of 9% per cent; 18 years
by an annuity of 7^ per cent; 38 years by an annuity of 5.80
per cent ; and 55% years by an annuity of 4% per cent. This
means that the interest rate is four per cent. The debentures
of the Bank are executed by the Minister of Finance. They
bear four per cent interest, and as they are quoted above par,
the bank is enabled to obtain money at a rate slightly lower
than that charged on the loans. No more than $2,575,000
in debentures may be issued in any one year without the
express sanction of the Czar.

Although the Peasants' State Land Bank procures this
cheap and easy money for its borrowers, it has always en-
countered great difficulty in collecting its loans. The farmers

172 EUEAL CEEDITS

seem to think that inasmuch as the Government has taken
such pains in helping them to acquire land, it ought to go the
full length and let them have it free. Indeed, the ez-serfs
of the crown and public domains appear never to have had
any iatention of paying their annuities. The defaults were
so numerous, heavy and long continued that the Government
dared not resort to forcible measures for fear of insurrec-
tion, and in 1907, realizing that there was no hope of recov-
ery, it renoimced all rights to overdue annuities and charges
and thereby released the farmers from a debt the capitalized
value of which was $839,820,800. This of course practically
wiped out the assets of the Bank. But the Eussian Govern-
ment is patient and indulgent vidth the farmers, and has per-
mitted them to contract further debts under its guarantee.
Their outstanding loans at the Bank now exceed $515,000,-
000, none of which brings in any profit, the institution being
purely benevolent.

The Peasants' State Bank employs about 2,000 surveyors
and agricultural experts, and has also a special board with
branches to act in conjunction with the land commissions
with their more than 5,000 officials and employees. All pur-
chases and parceling of lands by the Bank are now conducted
through the commissions, while the transactions of the com-
missions are nearly all financed by the Bank; thus all are
parts of a grand system. The land commissions were estab-
lished in 1906, when the farmers for the first time were given
the unrestricted control of the land which had been allotted
to them. The commissions were charged with the allotment
of lands still held in common, on which the collective liability
for annuities had all been abolished in 1905, and they were
substituted for the counties as the official agents for tmifying
the detached plots held by farmers. In 1911 the commis-
sions were authorized to assist any farmer to readjust his
holdings, no matter from whom the title was derived, and
to help him to acquire land suiBcient for his needs.

The work carried out by the land commissions, with the
aid of the Peasants' State Land Bank, during the first five
years of their existence affected 29,085,132 acres, or about

AUSTEIA, EUSSIA, AND BALKAN STATES 173

two-thirds of the CTiltivated area of Prussia or one-half that
of Italy. The commissions are authorized to grant small
loans to farmers whom they have assisted in acquiring land
or uniting plots. These -loans may be made without interest
and payable in equal instalments beginning with the sixth
year, and the amount of each must not be over $77.25. They
are granted to help pay the initial expense incurred by a
farmer in taking up a farm. The total amount thus distrib-
uted by the commissioners from 1906 to 1911 was $6,928,059.

In Finland state aid is extensively used for home coloni-
zation. Large tracts bought by the state have been subdivided
and sold to persons without land, but the most common prac-
tice since 1900 has been for the state to advance the funds
for this purpose to communes and cooperative societies. These
intermediaries between the state and the small holder may
acquire land by direct purchase for subdivision and sale, or
may grant loans to individuals in order to assist them ia
buying holdings.

The commxmes are required to organize rural banks be-
fore they may receive advances from the state, and each com-
mune is made liable for any advance its rural bank receives.
Each bank is managed by a board consisting of three residents,
two of whom must be landowners, appointed by the com-
mimal council. The cooperative societies which may receive
advances are those organized on the collective-liability basis,
and they lend only to members. In 1912 there were 303
communal rural banks and 13 cooperative land-purchasing
societies operating vdth state funds. The latter are steadily
increasing in number and will eventually become the more
numerous because they may take back from a member a
mortgage up to nine-tenths of the purchase price of the hold-
ing, while a borrower from the communal banks may receive
a loan only up to one-half the amount of the purchase price.

The advances made by the state bear four per cent inter-
est, together with an instalment on the principal sufBeient to
extinguish the debt within 25 or 30 years. The banks charge
their borrowers 4% per cent interest, the difference being
used for expenses or profits which are employed by the banks

174 EUEAL CEEDITS

for the good of their comnnmes, and by the cooperative land
purchasing societies for rebates among their members. The
smallest advance of the state to a bank or society is $965,
and the largest $46,320. The banks may not make loans of
less than $38.60 or over $386, except in a few favored prov-
inces, Trhere the maximum may be $579.

The Mortgage Society of Pinland, foimded ia 1860, is
an association empowered to issue guaranteed debentures for
the purpose of making loans to members upon the security of
unencumbered real estate on their joint and several liability.
This liability is so regulated that the properties and their
owners are liable on the debentures only in proportion to
the mortgages given. A reserve formed by small additions
to the interest rate on the loans is maintained at five per cent
of the face value of debentures in circulation, in order to
meet possible losses and protect members from the responsi-
bility of their guaranty.

Similar to the Finnish association is the Territorial Credit
Establishment for the Baltic provinces of Livonia, Esthonia
and Courland, which was chartered in 1818 by Emperor
Alexander who advanced it the necessary funds for its first
operations. This advance has been returned long since. The
collective liability of the borrowing members is limited for
each to three-fourths of the value of the mortgaged prop-
erties.

In Boumania the policy of expropriating the nobility for
the benefit of the peasants was inaugurated in 1864. The
Government paid for the estates confiscated and also bore
the cost of their subdivision and allotment among the peas-
ants. The enormous numbers of peasants who were given
small holdings left the nobility and large proprietors without
the customary forced labor to operate the land which re-
xaained to them, and as a result they gradually fell in debt
and were compelled to mortgage their farms in order to raise
money for living expenses. The German landschaft system
-was introduced for this class by a law enacted in 1873, and
the three institutions which were founded under that law
received subsidies from the state.

AUSTRIA, EUSSIA, AND BALEAN STATES 175

In 1908 the Eural Bank was founded in Eoumania on
lines similar to the Enssian Peasants' State Bank. The Gov-
ernment subscribed one-half of the $3,000,000 capital, and re-
served the right of designating its president and of super-
vising its business through a commissioner. In 1909, after
the serious peasants' revolt of 1907, the state extended fur-
ther favors to the small holders by providing by law that
rural cooperative associations should be given the refusal of
all public lands or lands of charitable institutions, districts
and communes which should be offered for lease.

In Servia a bond and_ mortgage institution was founded
by the Government in 1862. This land bank is the depositary
of the public funds of the nation and of the communes. It
is managed by officers appointed by the Government, and a
part of its profits go into the national treasury.

CHAPTEE XVII

SWITZEELAND, DENMABK, AND SCANDINAVIA

Numerous Swiss Land-credit Institutions. — ^Unique Mortgage Banks.
— Danish Associations Like German Landsehafts. — Mortgage As-
sociations in Denmark. — Mortgage Bank of the Elingdom of Den-
nark. — ^Home Colonization Policy. — ^Landowners' Mortgage As-
sociations.— Swedish General Mortgage Bank. — Appropriations
by Swedish Government. — State Aid in Norway. — ^Work Done
through Norwegian Bank for Laborers' Holdings and Dwellings.

There are in Switzerland 28 land-credit institutions be-
longing to the state or operating with the support of the
state, and 60 private mortgage banks, besides 104 savings and
loan banks which accord real-estate credit. All these insti-
tutions have been successful in granting loans for very
small sums, even up to four-fifths of the value of the land, at
low interest rates and on easy terms. They are able to do
this because they are so numerous and in such close prox-
imity to borrowers that they may examine carefully all appli-
cations and keep watch over securities and the use of the
money lent. Until 1913 there were 60 different forms of
mortgages and considerable variety in the interest rates. The
banks perhaps would not have been able to do much good
had it not been for the fact that there was an ample supply
of local capital. In that year a federal law was enacted com-
pelling all the banks to use one and the same type of mort-
gage instrument, and since then foreign capital has been
attracted and the interest rates nearly standardized. They
run from four to five per cent, which are the limits fixed
among the 23 cantons by the usury laws.

The mortgage banks of Switzerland differ from those of
the rest of Europe in that there is no correspondence between

176

SWITZEELAND, DENMAEK, SCANDINAVIA m

the debentures and the loans. The reason for this is that
most of the Helvetian mortgage banks do all kinds of bank-
ing business and finance their real-estate loan transactions
by any available money on hand. The issue of debentures or
bondSj however, is usually limited to ten or fifteen times the
capital stock. All loans are made in cash, the debentures
being issued and disposed of directly by the banks according
to their needs. State supervision is not exercised to the same
extent by all the cantons, but in many it is so pronounced
that the mortgage banks are public or semi-public institu-
tions.

The Mortgage Bank of Berne, founded in 1846 and re-
modeled in 1875, was given $1,400,000 for its initial capital
by the canton, which has also furnished other sources of
revenue. It has been made the depositary of public funds
and it administers the public debt and financial affairs of
the canton. ' It may make first-mortgage loans on lands situ-
ated vrithin the canton up to two-thirds of their value, lend
upon such securities, and receive deposits. But the loans are
not made directly by the Bank. The borrower must apply
through the commune which has jurisdiction over the locality
in. which his property lies. Each commune guarantees all
loans which it approves, but its liability extends only to the
estimated value of the mortgaged property, and it cannot be
called upon to pay any more than the amount of the defi-
ciency remaining after the property has been sold on execu-
tion. But it is not responsible for depreciation in the prop-
erty occurring after the loan has been granted. The canton
guarantees aU engagements of the Bank not covered by its
assets. The Bank must give the preference to small loans.
The largest allowed is $10,000. Eepayment is made by an-
nuities, which (including interest) must not exceed six per
cent a year. The interest cannot be one-fourth of one per cent
over the highest rate for deposits. The mortgages do not
have to be refiled every ten years as provided in the general
laws.

In the canton of Vaud the Government purchased 11,000
of the 19,500 shares issued by the Mortgage Bank of Vaud

178 EUEAL CEEDITS

for $110,000, and guarantees a four per cent dividend. The
Vaud Bank is authorized to use in its business the deposits of
the government savings bank and the government insurance
society. Its business is confined to making first-mortgage
loans up to three-fourths of the value of lands and buildings
within the canton; to lending on the security of such mort-
gages or debentures secured by such mortgages ; and to invest-
ing its assets in certain other kinds of bankable paper. The
shortest mortgage loan is five years, and the smallest $60.
Loans repayable by annuities are preferred, and they may run
from nine to 57 years.

Stockholders of the Mortgage Bank of Vand have two
votes for every ten shares up to 50, four for the next 50
Tip to 100, and one for each additional 100 shares. At their
biennial meeting they elect ten members of the board of
directors, two auditors and two secretaries. The cantonal
council of state appoints the president and the ten other
members of the board of directors, all of whom must be
stockholders. It also appoints from among the public ofB.-
cials a secretary for the board of directors and four stock-
holders to act with the president as the committee of super-
vision, the latter chosen out of 12 named by the board of
directors. Likewise, it appoints a managing committee of
a chairman and two directors, chosen from a list of nine
nominees presented by the board of directors. It will be seen
that the state thus has complete control of the Mortgage
Bank of Vaud.

The Land Credit Bank of Geneva was supplied at its
foundation with a capital contributed by all the 48 com-
munes of the canton, and it is managed by a board of direc-
tors composed of members of the cantonal and communal
councils. The Mortgage Bank of St. Gall, though a private
joint-stock company, was created by the initiative and is
operated under the guaranty of the cantonal government.
The canton owns one-fourth of the capital stock of the Mort-
gage Bank of Fribourg, and supervises its management
through a committee composed of the financial director of the
canton, two members named by the council of state, and 12

SWITZERLAND, DENMARK, SCANDINAVIA 17?

chosen by the stockholders. This bank offers a peculiar ser-
yiee not found elsewhere. If the debtor of a third person
will make a contract, secured by real estate, to pay to the
bank annuities for a number of years to be agreed upon, the
bank will undertake to pay the creditor his interest and capi-
talize the remaining portion of the annuities to pay off the
principal at maturity.

In Denmark there are 14 land-credit associations, pat-
terned after the new German landschafts, but differing from
them in a few particulars. The Danish landschafts lend on
both rural and urban real estate, and may grant straight
loans even for 60 years without amortization, provided they
do not exceed one-third of the value of the mortgaged property.
They may issue their debentures in such a way that mem-
bers are liable only for the series emitted during the period
in which they were admitted. The liability is further re-
stricted in that it extends to the full amount of the debenture
if the loan for which it was exchanged equals three-fifths of
the estimated value of the mortgaged property, but is corre-
spondingly less if tie loan is smaller than that fraction.
Apart from these differences there is little to distinguish
the Danish landschafts from the German type. Their
debentures are free from stamp taxes and are a lawful in-
vestment for public and trustee funds, while their loans may
be collected by summary process. The associations in ex-
istence were all organized shortly after the law which governs
them was enacted in 1850. Since 1861 new associations can
be created only by special acts. At the end of 1912 the total
of the outstanding loans was $440,860,000, with a maturity
of 60 to 70 years. The debentures in which they were made
bore four and 4% per cent interest.

Similar to the land-credit associations are nine other
Danish landschafts called mortgage associations, which were
brought into existence by a law of 1897 for the exclusive
purpose of extending credit on second mortgage. These
associations grant 25- to 30-year loans for small amounts up
to three-fourths of the value of the mortgaged property. They
also lend on both rural and urban property, but although

180 EUEAL CEEDITS

their debentures are highly privileged, they have been able
to raise funds for only $27,604,000 of loans. The total
amount of the farm loans granted by the 23 Danish land-
Bchafts is estimated at $233,160,000.

In 1906 the Mortgage Bank of the Kingdom of Denmark
was founded with a capital of $5,360,000 advanced by the
state at three per cent interest, to serve as a central institution
for the landschafts and also to assist the state in the work
of providing small holdings for homeseekers. The Bank
buys the debentures of the landschafts and the state-guaran-
teed bonds of the small holders and issues its own bonds upon
their security. So far it has been able to dispose of only
$10,720,000 of these debentures at three and one-half and
four per cent.

The home colonization policy of Denmark was inaugu-
rated in 1899 by the state's voting an annual appropriation of
$536,000 to be lent to small holders. In 1904 the annual
amount was raised to $804,000 and in 1909 to $1,720,000.
Any unused portion of one year's appropriation is accumulated
for subsequent years. Any able-bodied Dane of good repu-
tation between 25 and 50 years of age may now call on
the state to help him acquire a rural homestead of a value
not exceeding $1,742, including cost of buildings, livestock
and implements. In exceptional cases the value may be
$2,144. If the applicant can show that he has one-tenth of
the value in ready cash, the state vdll lend the balance at
three per cent on a first mortgage to be repaid at long term
by instalments, . beginniag in the sixth year. This business
is directed and supervised by district laborers' holdings com-
missions, each composed of three members, one of whom,
acting as president, is appointed by the Minister of Agricul-
ture, while the other two are elected by a body consisting of
two delegates from each commxine in the district. The com-
missioners, who are allowed only very small compensation,
are assisted by the municipal authorities. No landovmer,
however, can be expropriated, in order to create small hold-
ings, because the Danish constitution makes private property
inviolable except to the right of eminent domain. At the end

SWITZEELAND, DENMAEK, SCANDINAVIA 181

of 1911 the state had established 5,777 homesteaders with the
aid of $6,809,919 in loans.

In Sweden landowners' mortgage associations were the
first institutions especially created there to accord real-estate
credit for agriculture. The oldest of these was formed in
1831 and the latest in 1861. There are now ten of them, and
each has a definite territory, generally embracing several prov-
inces.

These associations are not entirely agricultural or com-
posed exclusively of borrowers. Any resident of the terri-
tory owning land of the value of $1,125 free and clear of all
encumbrances may become a member by making the contri-
butions prescribed by the by-laws. They are purely private
concerns, the supervision of the Government beiag confined
to inspection and the approval of the articles of agreement and
amendments thereto. In the smallest association allowed the
members' properties must have a combined value of at least
$1,125,000.

The minimum loan is $134 and the highest rate of in-
terest that may be charged is sis per cent, plus a percentage
for expenses. Arrears are charged a penal rate of 12 per
cent. First mortgages not exceeding half the value of the
land exclusive of buildings and forests are always required.
At present loans up to this maximum are granted for 28
years on an annuity of six per cent, and on an annuity of 4:5
per cent for about 56 years. Loans not repayable by annuities
or instalments may be granted up to one-third the value of
the land for 25 years at an interest rate of four per cent. The
charge for expenses is now one-twentieth of the principal.
As the associations have no shares or capital stock, no divi-
dends are distributed. The profits are placed in the reserve
imtil this fund reaches a certain amount, when they may be
used to lower the interest rate to borrowers. The reserve
fund now equals 4.61 per cent of the outstanding loans.

Formerly these associations were independent of one an-
other and each financed itself by issuing debentures. This
brought about competition and the debentures were fre-
quently sold below par. Finally, after the financial crisis

183 EUEAL CEEDITS

following the bad crops of 1857-9, sales ceased entirely, ia
spite of low quotations, and members were unable to get
further loans or extensions. The Government decided to
remedy these troubles and prevent their recurrence by uniting
the associations with a central institution to be controlled and
aided by the state.

This institution, called the Swedish General Mortgage
Bank, was founded in 1861 with an endowment of $2,144,-
000 of unconvertible state bonds. The Bank is managed by
a council composed of a president appointed by the King, a
vice-president appointed by the parliamentary committee on
the public debt, and three delegates elected by the associa-
tions. The council is subject to a board of five supervisors,
one of whom is appointed by the parliamentary committee on
the public debt and the others by the associations. The by-
laws of the Bank, made with the sanction of the king, cannot
be altered without the consent of Parliament. In 1890, when
the rules and regulations which now govern the Bank and
the associations were adopted, the state gave the Bank a fur-
ther subsidy of $8,040,000 in non-redeemable five per cent
government bonds, for converting outstanding debentures of
the associations issued below par. This subsidy may be used
for loans if the Bank should have no other funds, but in that
case the amount so employed must be immediately covered
by an issue of debentures.

, Membership in this Bank is open only to the ten land-
owners' associations or others which may be formed of the
same kind. They are jointly and severally liable for all debts
of the bank. The liability is proportioned for each associa-
tion to the amount unpaid on the loans it has received; the
TniTiimnTTi liability is $268,000. When the Bank first opened,
it absorbed the loans of the National Loan Bank which was
dissolved, but now its business is confined to' making loans
to the affiliated associations and it has an exclusive monopoly
of issuing debentures payable to bearer and secured by real
estate.

The lowest rate at which the Swedish General Mortgage
Bank may lend to the associations is 3.5 per cent. At the end

SWITZEELAND, DENMAEK, SCANDINAVIA 183

of 1913 its debentures in circulation amounted to $79,301,-
987, and loans to the associations to $80,192,903. Like the
associations the Bank has no share capital and pays no divi-
dends, all profits being placed in the reserve or used for re-
ducing the charges to borrowers. The loans of the ten asso-
ciations to members amounted in the same year to $74,989,-
348 ; they were secured by first mortgages on properties, prac-
tically all agricultural, valued at $235,161,659, and by the
reserves and the joint and several liability of the individual
members. As the total mortgage debt on rural lands in
Sweden was estimated at $536,605,784 in 1910, this system
holds a portion relatively small but suflBciently large to have
a salutary effect upon interest rates. All loans made by the
Bank to the associations or by the latter to members may be
recalled after ten years.- Members may pay in advance but
only when the association can immediately find a profitable
investment for such prepayments.

The landowners' mortgage associations rarely grant loans
of the minimum size allowed. Their members are mostly nobles
or owners of large estates. As in the case of the German
landsehafts, from which it was copied, this Swedish plan
of according credit upon the liability of groups of borrowers
has not proved of much use to small farmers. The credit
needs of this class are taken care of in Sweden by loans made
from public funds specially appropriated for that purpose.
The first of these funds was created in 1904 for building
houses for laborers and enabling them to acquire small hold-
ings in the country. The maximum loan allowed is $2,144
for purchasing a plot with no building upon it, and $1,883
for land with buildings standing. Bach loan is divided into
two parts, the first half being repayable by an annuity of
sis per cent in 28 years, the second being a straight loan at
3.6 per cent per annum. Loans must be secured by mortgages
which may not exceed five-sixths, but are generally no more
than one-half, the value of the land. The Government re-
cently appropriated $964,800 for facilitating this work, espe-
cially for buying and cutting up large tracts of land. Inter-
est on loans out of this fund is 4 per cent.

184 EUEAL CEEDITS

The Swedish Government also appropriates $268,000 an-
nually for draining and preparing newly cleared lands for
cultivation. The only maximum set for loans out of this
fund is that they may not exceed the amount of the expendi-
ture plus 70 per cent of the resulting increase in the value of
the land. No interest is charged for the first three years.
After that 3.6 per cent is charged up to the seventh year, and
then an annuity of 6 per cent \mtil the debt is extinguished.
Similar to this fund is the annual appropriation of $80,400
for clearing lands in Norrland. Loans from the Norrland
fund may not exceed $134 plus the cost of clearing the land.
They bear three per cent interest after the second year and
must be repaid within ten years. Excepting the appropria-
tions for drainage, all loans from these funds are made
through the rural cooperative associations, the rural people's
banks and other disinterested intermediaries, who are in-
structed to accept no applications but those of temperate and
industrious persons, male or female, between 21 and 50
years of age.

The Government of Norway tentatively began to assist
the movement back to the soil in 1834 and adopted a grand
programme for that purpose in 1903. The prime object was
to supply the large landholders with the labor of which they
were in great need, and it was thought that this object could
be best accomplished in a permanent way by helping each
laborer to acquire a small homestead on which his family
might live in comfort by means of the crops and their wages.

The programme of state aid is being carried out through
the Norwegian Bank for Laborers' Holdings and Dwellings,
founded in 1903 with a capital of $2,680,000 contributed by
the Government. This institution is managed by the officers
of the Norwegian Land Mortgage Bank organized in 1851,
and is supervised by the Minister of Finance. These officers
are assisted by local committees of labor, appointed by the
communal council in every commune in which the bank does
business, out of electors equally divided between laborers and
landowners.

The state draws five per cent interest per annum on the

SWITZEELAND, DEISTMAEK, SCANDIFAVIA 185

capital, but makes good any losses incuired. The Bank may
issue debentures payable to bearer whenever its own funds
become insufficient. These bonds are signed by the Minister
of Finance and are guaranteed by the state. They run from
30 to 80 years and are recallable at the will of the Bank.
The total in. circulation must never exceed six times the capi-
tal stock. Another privilege is that the Bank may sell at
auction any mortgaged property, in case of default after de-
mand, simply by publishing a notice for six weeks in the offi-
cial newspaper and the further notice provided by law on
judicial sales. No judgment or action by the courts is re-
quired.

The loans of the Norwegian Bank for Laborers' Holdings
and Dwellings are granted to poor persons, male or female,
either for the purchase of small farms or for erecting, com-
pleting or purchasing dwellings. A person is considered
poor if his assets are less than $402. A small farm is 50
acres of land, cultivated or not, or at most 200 acres of culti-
vated land the value of which does not exceed $804. If the
application of such a person is approved by the committee of
labor of the commune which he inhabits, he may obtain a
loan from the Bank for buying such a small farm and for
erecting the necessary buildings on it. The amount must not
exceed nine-tenths of the actual price increased by the esti-
mated value of the improvements. The interest rate is 3.5 per
cent. The principal is repaid in semi-annual instalments be-
ginning in the sixth year of the loan and running for 42 years.
The security in all eases must be a first mortgage guaranteed
by the commune. These loans may be made directly to the
applicant, or the Bank may advance money to the commune
for the purchase of tracts to be divided and sold on mortgage
to poor persons.

Loans for erecting, completing or improving dwellings
also may be made directly or to the communes or to societies
organized for building such houses. These building loans
draw four per cent interest, and the repayment of the capital
begins after the second year and runs for 28 years. The
terms imposed for these loans have some points of difference

186 EURAL CREDITS

depending on whether the house is to be erected in the town
or in the country. For country building the requirements ex-
acted are about the same as those for the purchase of small
farms, with the exception that the plot cannot exceed 50
acres. The loan is paid to the contractor in instalments as
the work on the building progresses. The total amount up
to which a rural commune may obligate itseK in guarantee-
ing loans at the Bank is $40,200. The number of rural hold-
ings created by loans from the Bank down to 1913 was
11,579.

CHAPTER XVIII

LAND CREDIT OUTSIDB OF ETJEOPE

Land-credit Institutions in Egypt. — ^Land-credit System of Japan. —
Agricultural Bank of the Philippines. — State Banks of Australia.
— Queensland Agricultural Bank. — State Aid for Home Coloniza-
tion in New Zealand. — Mexican Land Mortgage Banks and Pro-
motion Banks. — Three Land-credit Institutions in Argentine Re-
public.— Early and Successful Laud Credit in Chile. — Banco Hi-
potecario del Uruguay. — Costa Eica 's State Land-mortgage Bank..
— Territorial Bank of Cuba. — ^Development in Europe and
America of Loans on Life Insurance Policies.

The highest estimate of the value of real estate in Egypt
is five billions, and the lowest, two billions of dollars. The
mortgage indebtedness is about $243,000,000, or at most not
much over one-twentieth of the highest estimated value of
the land; and since the interest rate thereon varies from 5^4
to 7 per cent, the landowners have no difficulty in carrying
this burden, because the land itself yields six to nine per
cent annually, and nowhere is encumbered to over 60 per
cent of its value. About $40,600,000 of this indebtedness
is held by private persons and insurance companies, and
the rest by the five land-credit institutions now existing in
Egypt.

Some features are worthy of notice iu two of these institu-
tions, the Credit Poncier Egyptien (Egyptian Land Credit
Company) and the Agricultural Bank of Egypt. The former is
a private joint-stock company operating without any special
privileges. Its main object is to grant long-term loans se-
cured by first mortgage, running from five to 50 years and
repayable by periodical instalments. In appraising land for
security it places its valuation at 50 per cent of the actual
value and allows credit only up to ecTper cent of that valua-

187 ■ 7

188 EUEAL CEEDITS

tion. This wide margia makes its debentures so safe and sale-
able that it is able to grant loans at the lowest rate prevailing
in Egypt. The last debentures issued bore four per cent in-
terest, but this does not indicate the true cost of raising
money for its operations, because as a general practice it
issues its debentures below par so as .to give the holder a
premium at maturity. At the beginning of 1913 the out-
standing debentures amounted to $116,975,436. Dividends
have never been under 9% per cent a year. For the last four
years they have been 26 per cent on ordinary shares and over
500 per cent on founders' shares. The company serves large
and medium-sized landowners.

The second institution mentioned, the Agricultural Bank
of Egypt, is especially designed for the small proprietor.
Mne-tenths of the population of Egypt is agricultural, and
the holdings and credit needs of the majority of them are too
small to he considered by other Egyptian banks. The first
remedy devised for supplying the lack of credit facilities was
put in operation in 1894, when the Government bought cot-
ton seed and sold it to the growers on time; this has been
done on various occasions since. The next move was to re-
quire the Credit Foncier Egyptien to lower the minimum of
its loans to $500, but as the average loan of the Egyptian
farmer is below $150, this did not do much good. The Na-
tional Bank of Egypt, however, opened an agricultural sec-
tion soon after its establishment in 1898, and began to grant
loans in sums of $100 and under, payable in five annual in-
stalments. The Bank's business of this kind grew so rapidly
in volume, absorbed so much of its assets, and showed such
a large unsatisfied demand for loans that in 1902 the Govern-
ment brought into existence the Agricultural Bank to attend
exclusively to the needs of the small farmers, and transferred
all outstanding agricultural loans of the National Bank of
Egypt to the new institution.

The Agricultural Bank of Egypt is a private joiut-stock
company, but it is supported and controlled by the state.
About one-third of its shares are owned by the National Bank,
which stands in close relations with the Government. The

LAND CEE-DIT OUTSIDE OF EUEOPE 189

president of the board of management is the governor of the
National Bank. This board consists of seven members, three
of whom are chosen from among the directors of the National
Bank. Government commissioners audit the accounts of the
Agricultural Bank and supervise its affairs. The Govern-
ment guarantees 3 per cent dividends on its stock and also
the repayment of its debentures whenever this is necessary
in order to obtain money at fair interest rates. The tax col-
lectors collect and remit the payments on loans, the Bank
giving them a one-half of one per cent commission for this
work.

The Agricultural Bank of Egypt grants both real and
personal credit. Loans not exceeding $98.86 and running
for 15 months or less may be granted on personal security.
Loans over that amount must be secured by first mortgages
on real estate worth at least double the amount of the loan.
The maximum size of the loans is $1,483.90 and the greatest
length 5y2 years. They are usually repayable by instalments.
The highest interest which may be charged is nine per cent
per annum. The maximum for all loans, new and old, must
be reduced to eight per cent when the total of the loans
amounts at the end of the previous year to $34,601,000. In
1911 the Bank had granted loans to over 350,000 small
farmers. The average size of the personal loans was about
$60, and of the real-estate loans $170. The latter constitute
most of the business of the bank.

In Japan the land-credit system comprises the Nippon
Kwango Gioko, a central land-credit bank for making large
loans all over the country, and the Noko Ginko, land-credit
banks of a local character, of which there are 46, or one in
each prefecture. Besides these institutions there is the Co-
lonial Bank for Hokkaido, which extends its operations into
the Japanese portion of the island of Saghalien, while the
Taiwan Bank talses care of the agricultural needs of For-
mosa, and the Chosen Bank and the Oriental Colonization
Company of those of Korea.

AU these banks were chartered by special acts or decrees,
and the rules and regulations governing them are not all

190 EUEAL CEEDITS

alike. The Kwango Ginko or Central Bank was organized in
1896. It is authorized to make loans secured by first mort-
gage on real estate, repayable by annuities within 50 years,
and loans similarly secured or on fishery rights to be paid in
lump within five years. The latter must never exceed in total
amount one-tenth of the former. Moreover, loans secured by
urban properties must never exceed one-half of the Bank's
paid-in capital. Long-term loans repayable by annuities may
be made to the Koko Ginko banks on the security of mort-
gages taken by them, and without mortgage security to mu-
nicipalities, public corporations, farm land adjustment asso-
ciations, cooperative societies, fishery and forestry societies
and their federations. The Bank may also guarantee the
bonds of the Noko Ginko banks.

In addition to the foregoing powers the Central Bank
may buy the bonds issued by the Noko Ginko and, with its
surplus funds, the bonds of the Imperial Government, receive
bullion and negotiable instruments for safekeeping, and ac-
cept deposits up to the amount of its paid-in capital. Loans
may not be granted on the security of schools, hospitals, sani-
tariums, theaters, mines, quarries, swamps, or mineral
springs. The properties used for security must be such that
the Bank may acquire a first lien on their titles and that
their revenues will equal the annuities or annual instalments
to be paid on the loans. The loan must never exceed in
amount two-thirds of the value of its security; on buildings
the loan may be only one-half of the value and the buildiags
must be insured in favor of the Bank.

The interest rate on loans is determined by the Miaister
of Finance. The maximum is now eight per cent. The an-
nuities or annual instalments of a loan must be level or equal
for all the years of the term. The debentures issued by the
Bank have no fixed maturity but are redeemed two or more
times a year by drawings, up to the amounts paid in or
which should have been paid in on the loans. The total of
debentures in circulation must never exceed the live out-
standing loans, and if borrowers make advance payments, a
corresponding amount of debentures must be withdrawn forth-

LAND CEEDIT OUTSIDE OF EUROPE 191

with by redemption or purchase. The debentures may be
issued to be redeemed with premiums and prizes.

The Imperial Government guaranteed 5 per cent divi-
dends on the capital stock of the Nippon Kwango Ginko dur-
ing the first ten years. This guaranty is no longer continued,
but the Bank is exempted from registration and stamp duties,
enjoys various other immunities, is subject to the control of
two public supervisors, and is used as the agent for distribu-
ting the money which the Government provides for cheap
loans to the Noko Ginko, the Colonial Bank of Hokkaido,
the farm-land adjustment, cooperative, forestry and fishery
societies. This money now comes from the postal savings
banks.

In 1913 the Nippon Kwango Ginko had a capital of
$4,980,000, of which $3,112,500 had been paid in. The
outstanding loans, including the bonds of the Noko Ginko
guaranteed by the Bank, amounted to $72,912,076, and the
debentures in circulation to $64,531,225. The profits were
33 per cent of the paid-in capital after setting aside the usual
eight per cent for the reserve and an additional two per cent
into a fund maintained for steadying the dividends.

The Noko Ginko, or local prefectural land-credit banks,
were established by a law enacted in 1896, and all 46 banking
institutions were brought into existence within a few years
thereafter, each with a capital of $149,400 or more. They
may make long-time reducible loans for 30 years and term
loans for five years for the same purposes, upon the same
kind of security and conditions, and to the same classes of
borrowers allowed to the central mortgage bank. The coop-
erative societies, to which they may grant unsecured loans,
must be composed of at least 20 members with joint and
several liability. These local banks also may receive bullion
and negotiable instruments for safekeeping and accept de-
posits up to the amount of their paid-in capital. No limit is
set for the deposits which may be taken in gold. They may
also buy negotiable instruments and securities of other banks
under regulations similar to those prescribed for the Central
Bank. Bonds may be issued and put in circulation up to

192 EUEAL CEEDITS

five times their paid-in capital, but they may not be sold
with a premium or prizes. The only relation of the 'Ndko
Ginko with the Central Bank is that the latter institution
may guarantee and sell the bonds of the locals and advance
them fimds in case of necessity.

The Imperial Government appropriated $4,980,000 as a
subsidy for the Noko Ginko banks. This sum was allotted
among the prefectures at the rate of 70 yen ($34.86) for every
100 cho (245 acres), and was used by the prefectures for buy-
ing shares in the banks. No dividends were allowed on the
shares so acquired for the first five years, and after that the
dividends thereon were put into the reserves by order of a
decree which required them to be so set aside for 15 years.
The banks are supervised by high prefectural ofScers.

At the beginning of 1912 the capital of the 46 Noko
Ginko banks was $17,166,060, of which $15,120,260 was paid
up. The reserves were $4,551,076, and the outstanding loans
$47,560,000, while a dividend was declared of 8.4 per cent.

The Agricultural Bank of the Philippines was established
in 1908 on lines similar to the Egyptian institution. The
Insular Government appropriated the sum of $500,000 for
its capital. The Bank is managed by a board of directors,
composed of the Secretary of Finance and Justice, the insu-
lar Treasurer, and three members appointed by the Governor
General with the advice and consent of the Philippine Com-
mission. The first mentioned Secretary of Finance and Jus-
tice is chairman of the board and the insular Treasurer is
manager.

The Bank may receive deposits from anyone, but it may
grant loans to farmers alone, and to them only to lift prior
encumbrances on agricultural lands, to aid in the purchase,
cultivation and improvement of such lands, to purchase fer-
tilizers, seeds, machinery, implements, and animals to be
used exclusively in agriculture, and to pay the expenses of
planting, caring for and harvesting farm crops and prepar-
ing them for the market. The smallest loan permitted is
$25 and the largest $17,500. One half of the capital of the
bank must be set aside for loans of not more than $1,000

LAND CEEDIT OUTSIDE OF ET7E0PE 193

First mortgages, real or personal, are always required for
security, and no more than 60 per cent of the value of the
mortgaged property may be loaned. Loans are granted upon
resolution of the board of directors, but no real-estate mort-
gage may be accepted until the title of the property has been
passed on by the Attorney General.

This Philippiae Agricultural Bank now has 34 agencies in
active operation. It has invested in loans all its capital, be-
sides a few thousand dollars of deposits received from the
provincial governments. By order of the Governor General,
not to exceed 20 per cent of the minimum which such de-
posits have reached during the past six years may be so in-
vested. The Bank is authorized to make 20-year loans but
none actually granted runs over five years. The maximum
interest rate is ten per cent. Bonds or debentures may not
be issued.

The State Advances Act of South Australia of 1895, with
amendments of 1897 and 1901, authorized the creation of a
state bank to be managed by five trustees and a general in-
spector appointed by the Governor, with power to issue mort-
gage bonds guaranteed by the state. Loans may be made to
farmers, cattlemen, and other persons engaged in rural in-
dustries, such as freezing meats and the manufacture of dairy
products and wines, for their particular purposes, and to
public authorities for building bridges, wharfs, roads and
making other permanent improvements. The term may be
from seven to 42 years, and the amount may be, for mort-
gage loans, three-fifths of the value of the unimproved prop-
erty plus one-third of the value of any improvement thereon,
with a maximum of $25,000 to any one person. The loans
may be made either in cash or by exchanging the bonds of
the bank for the mortgage of the borrower. Eepayment is
made by half-yearly annuities including an interest charge
which must not exceed five per cent.

The Agricultural Bank Act of Western Australia of 1894,
as amended by 1896, provided for a bank managed by a
president appointed by the Governor for issuing government
five per cent bonds. Loans may be granted to farmers for

194 EUEAL CEEDITS

making improvements, such as clearing, cultivating, ring-
barking, fencing or draining the land, digging wells and
constructing reservoirs, or erecting buildings for agricultural
or pastoral use. The term may be for 30 years. The amount
must not exceed three-fourths of the value of the improve-
ments, with a maximum of $4,000 to any one person. The
loan is usually advanced as the improvements are made, and
is repaid by half-yearly instalments of at least one-fiftieth of
the principal, with six per cent interest.

The Advance to Settlers' Act of New South Wales of
1899 created a board of three members appointed by the
Governor and financed by the sale of government stock bear-
ing Sy2 per cent interest. Loans may be made to purchasers
of crown lands to relieve them from financial diflBculties due
to droughts. The term is ten years and the maximum amount
$1,000. If the land is already encumbered the first mort-
gagee must give his consent before the loan may be granted.

The Savings Bank Act of Victoria of 1890 provided that
commissioners of the savings bank may, from money obtained
by the sale of government bonds bearing 4% per cent interest,
make loans to farmers, graziers and truck gardeners or any
persons engaged in agricultural, horticultural or pastoral
pursuits, to assist them in paying ofE existing encumbrances on
their lands and for making improvements. The amount may
not exceed two-thirds the value of the land at the time the
loan is made, or be less than $150 or larger than $10,000.
Special provisions exist for various kinds of lands. Eepay-
ment is made in 63 half-yearly instalments, which, with 4l^
per cent interest included, must not exceed 6 per cent a year.

The Agricultural Bank Act of Queensland of 1901 crea-
ted a commission of three trustees and a manager appointed
by the Governor, and authorized the raising of $1,250,000
either by appropriations by the legislature or by the sale of
debentures secured by the consols of the state and beariag
not over four per cent interest. Loans may be granted from
this fund to homesteaders of crown lands for making numer-
ous designated improvements. The amount is thirteen shil-
lings in the pound of the estimated value of the proposed

LAND CREDIT OUTSIDE OF EUEOPE 195

improvement ; no person may receive more than $4,000. Ad-
vances are made generally as work on the improvement pro-
gresses, and are paid back in 25 years by paying five per cent
interest for the first five years, and then by 40 half-yearly
instalments of £4 Os. 6d. in the £100.

State aid is granted in N"ew Zealand for home coloniza-
tion and closer settlement on lands acquired from private
individuals as well as on the public domains. When private
property is needed or desired for settlement, it may be com-
pulsorily acquired if the Government and owner cannot agree
upon the price. This state aid to settlers and homesteaders
is distributed not through banks, public or private, but
through special boards or commissions which are charged
with the duty of making the loans out of moneys raised for
the purpose by annual appropriations or by the issue of gov-
ernment bonds.

There are special rules and regulations for the various
boards. Sometimes the land is sold to the settlers and some-
times it is leased. The Advances to Settlers OfBce illustrates
in a general way the methods adopted by the New Zealand
Government in carrying out its land-credit policy. This body
is a governmental department, supplied with a capital fund
of $30,000,000 by the issue and sale of governmental bonds
drawing not to exceed four per cent interest. Sums not in
excess of $7,500,000 in any one fiscal year may be raised in
this way for the operations of the oflBce. If the total amount
is not needed within the year, the balance may be added
to the amount authorized for any subsequent year. The bonds
are redeemed from a sinking fund created by contributions
of one per cent of the principal of loans made from the pro-
ceeds of the bonds.

Loans to settlers may be for ten years or under at five
per cent per annum, or for 36^^ years repayable by a semi-
annual annuity of three per cent. The smallest loan on rural
property is $135, and the largest $15,000. For urban and
suburban properties the minimum is $1,250, and the maxi-
mum $10,000. Prepayments are allowed and may be used
for paying off entire annuities, or for paying off only that

196 KUEAL CEEDITS

portion of the annuity wMcli represents the principal, or for
a complete readjustment of the size and the length of the
loan. First mortgages are always required for security.
Three-fifths of the value is the very largest amount which
may be advanced on any property.

In 1882 Mexico granted an exclusive monopoly for 20
years to one land mortgage bank on condition that it would
supply all the needs for such an institution in the Eepublic.
The condition was not complied with and the monopoly was
annulled in 1897, on the passage of the act on credit institu-
tions in which provision was made for a plurality of banks.

This act, amended in 1908, was largely the work of Sr.
Joaquin D. Casasus, chairman of the commission appointed
to formulate a bill to revise the Mexican banking laws, and his
report prepared for the commission is a lumiuous and inter-
esting treatise on the subjects studied. As recommended by
Senor Casasus, there are now two kinds of financial institu-
tions for assisting agriculture in Mexico, namely, land mort-
gage banks and promotion banks. These banks obtain their
charters not from the states but from the federal executive.
The minimum fixed for the capital stock is one million pesos
($498,000) , one-half of which must be paid up before begin-
ning business. Twenty per cent of this sum must be invested
in government bonds. Ten per cent of the net profits must
be set aside each year for creating a reserve. The articles of
agreement and by-laws of each bank must be submitted for
approval to the Minister of Finance, who is charged with the
general supervision of the banks.

The banks are supervised through inspectors permanently
appointed for each bank, or through special inspectors ap-
pointed for particular cases, to whom the Minister may give
such instructions as he deems fit. The inspectors must coun-
tersign all debentures, notes and bonds of the banks, be pres-
ent at drawings of these instruments for retirement and at
auction sales of properties taken in foreclosure, and see that
these instruments of credit are not issued or left in circula-
tion in excess of the legal limit. The periodical reports which
the banks are required officially to make are submitted by

LAND CEEDIT OUTSIDE OF ETJEOPB 197

the iospectors to the Minister of Finance and published. Spe-
cial proceedings are allowed for selling mortgaged properties
in case of default which cannot be interfered with by other
creditors of the delinquent debtor. The capital stock, shares
and dividends of the banks are exempted from taxes, federal,
state or municipal. The debentures, bonds and notes of the
banks may be required to be stamped but five centavos is the
highest tax. The states or municipalities in which the banks
axe located cannot tax them on their business. These tax
exemptions endure, however, only for the first 85 years of a
bank's existence. The only form of organization for which the
laws provide is the joint-stock company. Landschafts or asso-
ciations of borrowers are not allowed, so the banks bear the
character of intermediaries between persons who have money
to invest and rural or urban landowners who are looking for
means to improve their property, pay off its encumbrances or
increase its productivity. The banks themselves directly nego-
tiate the credit instruments issued for financing these trans-
actions, but are authorized to realize the loans in bonds or
debentures instead of in cash if they choose and are able
to do so.

A mortgage bank, under the Mexican law, is one which
makes loans secured by urban or rural lands and issues inter-
est-bearing bonds or debentures secured by such loans redeem-
able under fixed conditions or at fixed times. The loans may
be for either short or long, term. The former are those which
whether payable in one or more instalments are in all cases
less than ten years in duration. The long-term loans are
those payable in not less than ten nor more than 40 instal-
ments, whether quarterly, semi-annual or annual, comprising
interest, a portion of principal and the commission of the
bank. The loans must be secured by mortgages on unencum-
bered real estate located in the state in which the bank main-
tains its headquarters and must never exceed one-half the
value of such property, nor may the annuity on the long-
term loans be larger than the proceeds of the principal repre-
sented by the property estimated at stated rates as provided
by law. The limit thus fixed for the loans must be reduced

198 EUEAL CREDITS

to 30 per cent of the property's value when buildings consti-
tute more than half of its value, unless the owner binds
himself to insure the buildings for the entire period of the
loan. The value is determined by experts appointed by the
banks, unless the Minister of Finance allows the banks to
operate on fiscal valuations.

The aggregate amount of the mortgage loans of a bank
must never at any one time exceed 20 times its paid-ia capital,
nor may loans to a single person or corporation exceed one-
fifth of that capital. Loans may be paid in advance either in
whole or in part. If the mortgaged property depreciates
in value, a bank may call upon the borrower to give additional
security. Payments due mortgage banks for principal or
interest cannot be subject to attachment, even though applica-
tion be made therefor in due form before competent judicial
authorities. In the event of default the banks have a summary
legal process for foreclosure and sale which may not be inter-
fered with by third parties. A bank may buy if there are no
other bidders at the auction sale, but may not hold real estate
over three years.

The nominal value of the debentures of a mortgage bank
must never exceed the amount of the mortgage loans. The
interest rate is determined by the bank. The denominations
of the debentures are 100, 500 and 1,000 pesos ($498). They
are transferable by mere delivery from hand to hand or by
indorsement, according as they are made payable to bearer or
are in the name of the holder. They may be issued with or
without a fixed date for redemption; if issued without a
fixed date they are paid off by drawings. With permission
of the Minister of Finance premiums and prizes may be
allowed at the payment of either interest or principal. The
drawings take place twice a year, and at each drawing enough
debentures must be redeemed to keep the nominal value of
those in circulation at a figure not exceeding the net amount
of the outstanding mortgage loans. The drawings must be
held in public after publication in the official newspaper, and
must be presided over by a government inspector. One week
after the drawing the numeros of the debentures retired must

LAND CREDIT OUTSIDE OF EUROPE 199

be officially advertised and the date set after which payment
shall be made. Debentures withdrawn by drawing lots must
be canceled. Those acquired by purchase or from borrowers
who use them for payments on their loans may be returned
to circulation.

The debentures have a lien upon the mortgage loans su-
perior to that of any other creditors of the bank. They may
be issued in advance of the loans, but any loan made in money
which has to be obtained by the sale of debentures or bonds
must be on the condition that its completion shall depend
upon the results of such sale. This enables a bank to finance
its loan operations without touching its capital or other funds,
but the equilibrium prescribed by statute between the deben-
tures and the loans must be restored at the next drawing. In
addition to the mortgages each bank must accumulate a special
guaranty fund to assure prompt payment of the interest and
principal of the debentures. This fund must always be larger
than the aggregate amoimt of the half-yearly interest on de-
bentures in circulation. Besides the tax exemptions already
noted, the debentures have certain other privileges. They
have right of property not only to the mortgages taken, but
also to the reserves, guaranty fund, and capital whether paid
up or uncalled for. Holders may bring summary action upon
refusal of the banks to pay interest or principal when due after
demand made therefor by a notary. The payment of principal
or interest cannot be prevented or delayed by any judicial
order, except when the debentures have been lost or stolen.
The funds of corporations or incompetent persons may be
used in purchasing debentures in all cases in which funds of
such persons may be invested in real-estate mortgages.

Land mortgage banks may receive deposits only up to twice
the amount of their paid-in capital and reserves. They must
always hold in cash at least one-half of these deposits on sight
or at three days' call. The other half may consist of sums
immediately realizable or negotiable and of paper discounted
for not longer than six months, the latter not to exceed 25
per cent of the whole amount of the deposits. The banks may
make loans without mortgage for public works or improve-

200 EUEAL CEEDITS

ments by virtue of contracts entered into with the federal,
state or municipal governments. These may be secured by
the securities issued against the works or improvements in
question.

The Mexican promotion banks, which are specially de-
signed to encourage mining, agricultural and industrial enter-
prises, make preferred loans unsecured by mortgage, guarantee
undertakings, and issue short-time treasury bonds or certifi-
cates running for a fixed time and payable on specified dates.
They may make cash loans both to farmers owning and op-
erating their own land and to tenants and other persons
engaged in agricultural pursuits. Loans to landowners must
not exceed three years and cannot be renewed. They may be
granted for the payment of wages, the purchase of seeds, raw
materials, implements and machinery, administrative expenses,
and the upkeep or preservation of property. The loan con-
tract must set forth the purpose of the loan and be sworn to
before a' notary public. When inscribed in the registry of
deeds, it becomes a lien on the property which cannot be af-
fected by any subsequent transfer by the owner. The size
of such a loan must never exceed 15 per cent of the value of
the property. It is the bank's duty to watch the use of the
loan.

Loans to tenants or other persons engaged ia agricultural
pursuits on land not owned by themselves must not run for
a longer period than two years. The security must be a
chattel mortgage on farm products, crops, raw materials, live
stock, implements, machinery or utensils. When the chattel
mortgage is filed, it gives the bank a lien on the personal
property described therein over that of any claimant with a
subsequent title. The aggregate of the loans of these two
classes which a bank may make must not exceed two-thirds
of the amount of its paid-up capital and its treasury bonds in
circulation.

Promotion banks have the same rights of summary pro-
ceedings to enforce their claims enjoyed by land mortgage
banks, and are subject to the same rules governing loans
on collateral made by banks of issue. The notes or other

LAND CREDIT OUTSIDE OF EUEOPE 201

security which promotion banks may discount or guarantee to
facilitate negotiation must not run for longer than six months.
The treasury bonds which they are authorized to issue must
be redeemable within periods which may not be less than three
months or more than three years. The amount of the treasury
bonds of a promotion bank in circulation must not exceed
at any one time double the paid-up capital stock. Such a
bank is required to keep in cash on hand at least 40 per cent
of the amount of its deposits payable on demand or within not
more than three days, with the option, howcTer, of substitut-
ing for cash up to one-half of this percentage securities which
are immediately convertible. The remaining 60 per cent of
deposits must be represented by paper discounted for a period
of not more than six months.

The internal disturbances which have seriously interfered
with all business in Mexico during recent years have pre-
vented the development of banks under the land-credit law.
The present prices of the debentures and bonds of the few
banks in operation do not furnish a criterion for estimating
their intrinsic value. The largest of the banks is the Caja
Prestamos para Obras de Irrigacion y Fomento de la Agricul-
tura, or Institution for the Encouragement of Irrigation
Works and the Development of Agriculture. The charter of
this institution was granted by a special act in 1908. The
initial capital was $10,000,000 (Mexican) divided into three
issues, of which one belonged to the Government, one to the
four banks which participated in its formation, and one was
sold to the public. The participating banks were authorized
to sell one-half of their holdings.

The chief object in bringing this institution into existence
was to take off the hands of banks of issue a lot of securities
which they had acquired in financing irrigation and land-
development projects. The Institution is empowered to grant
loans secured by mortgage or pledge upon the guaranty of any
of the four banks which participated in its foundation. It
is authorized to issue debentures against these loans in the
same way in which a bank of issue may issue notes. The
debentures are guaranteed both as to interest and principal

202 EUEAL CKEDITS

by the Federal Government, which obligates itself to place
at the disposal of the Institution the amount needed to meet
all payments when due. The management of this semi-
public land-credit and land-development institution is lodged
in a board of 15 directors, of whom three are chosen by the
Mexican Federal Government.

The Argentine Eepublic has three public land-credit in-
stitutions. The largest is the Banco Hipotecario Naeional
founded in 1886. The Government guarantees the in-
terest and the principal of the notes and bonds which this
bank is authorized to issue for financing its operations. The
bank may grant building loans in Buenos Ayres and in cities
of more than 50,000 inhabitants to a total amount fixed for
each branch by the board of managers. Ordinary building
loans may not exceed 30 per cent of the value of the mort-
gaged property; special loans to owners of small lots in
Buenos Ayres, up to $5,790, 60 per cent of the mortgaged
property; special loans for building workmen's dwellings, 60
per cent of the mortgaged property ; special loans for aflEores-
tation and the construction of industrial plants within five
kilometers of a port or railway station, 40 per cent of the
mortgaged property; and loans on vineyards five years old, 40
per cent of the mortgaged property. In all these cases the
loans are made not in cash but in notes of hand of the bank
given to the borrower in exchange for his mortgage.

Cash loans may be granted by this Argentine National
Land Bank on any lands for sums not exceeding $1,930 or for
a term not exceeding five years, repayable in lump or by
instalments ; to farmers up to 80 per cent of the value of the
mortgaged property as determined by the assessment for the
land tax, to a maximum of $2,895; and for supplying dwell-
ings with water, between the limits of $482.50 and $1,447.50.

The bank must not have more than $386,000,000 (Mexi-
can) of its notes of hand in circulation at any one time. In
addition, however, it may, with the consent of the Govern-
ment, issue $28,350,000 of bonds to be used exclusively in
making mortgage loans. The reserves of the bank must be
increased each year by 30 per cent of the annual profits. This

LAND CEEDIT OUTSIDE OF EUROPE 203

fund must be invested in government securities. The rest
of the profits may be used in making cash loans.

Land credit was organized in Chile while the Indian and
buffalo in western United States could roam from the Gulf of
Mexico to the Canadian border without crossing a railroad
track or seeing the face of a white settler. Loans of 33 years,
repayable by annuities, were being granted m Chile when the
farmers of Kansas were losing their homesteads by the fore-
closure of three- and five-year mortgages. Chilean mortgage
bonds or debentures are officially listed on the Paris Bourse
and have been made legal investments by the French Ministry
of Finance for all purposes for which even government bonds
may be used. They are bought also by English bankers and
find a ready market in other parts of the European Conti-
nent where offers of American mortgage bonds would be re-
fused.

The Chilean land-credit law was enacted in 1855, three
years after that of France, and it has proved so satisfactory
that very few amendments have been made. The law is a
general one, allowing any persons who comply with its terms
to form a company. A number of companies have been
formed thereunder and are doing a good business. Neverthe-
less they operate at a disadvantage, because of the fact that
the Chilean, like the French, Government organized a state
bank under the general law, and although it has not given
this institution a monopoly it has invested it with such privi-
leges that no others can compete with it successfully. It
holds two-thirds of the mortgages taken by bond-issuing land
banks in Chile, and it is able to hold so many more than its
competitors that it absolutely dictates the rate of interest.

This institution is called the Caja de Credito Hipo-
tecario, or Chilean State Land Mortgage Bank. It has
no capital stock or shareholders. It is owned and managed
by the Government, and the net profits are used for the
benefit of borrowers or for creating or supporting savings
banks. The President of the Republic appoints the managing
director of the bank on his own motion, its secretary upon
nomination of the managing director, and the treasurer.

204 EUEAL CEEDITS

cashier and inspector upon nomination of the board of direc-
tors. The board is composed of these officials, two directors
elected by the Senate and two elected by the House of Eep-
resentatives. One of each of these two pairs must be chosen
from among the heaviest borrowers of the bank who are land-
owners, but the positions are honorary and draw no salary.
The powers and duties of the board are determined, within
the scope laid down in the law, by the President of the Ee-
public with the consent of the Council of State. Another
feature peculiar to this bank is that the appraisal of prop-
erties offered for mortgage is made by a commission of experts
appointed by the board upon nomination of the borrowers.

The Caja de Credito Hipotecario lends on the security of
unencumbered real estate situated in the Eepublic up to a
maximum of one-half its value for ordinary borrowers, and
of three-fourths its value for the purchase or construction of
cheap dwellings; and without mortgage to a large irrigation
company, created by a special act of 1908, up to a certain
designated portion of the value of its assets and credit stand-
ing. The minimum loan is 500 pesos ($104) on property
worth at least 2,000 pesos ($416), but the smallest loan
actually granted is $624 on property worth $2,080. The
loans are not made in cash. They are effected by exchanging
the bonds of the Bank for the note and mortgage of the
borrower, but as the Bank undertakes to sell the bonds with-
out commission for the borrower, the loan becomes a cash
transaction as a matter of fact.

These bonds are issued in series, either in the name of
the holder or payable to bearer, in denominations of about
$20, $50, $100 and $200. The issues in circulation include
eight per cents redeemable within 28 years, seven per cents
redeemable within 30% years, six per cents redeemable within
33 years, and five per cents redeemable within 25% years,
to mention only those with the longest periods. The appli-
cant who is granted a loan obligates himself to pay the in-
terest on the bonds in which he chooses to have it made,
together with the necessary instalments to effect the redemp-
tion of the bonds at their maturity and one-fourth of one

LAND CEEDIT OUTSIDE OF EUEOPE 205

per cent in addition for expenses and reserve. These sums
are combined to form an annuity, one-half of which must be
paid every six months. In this way the borrower amortizes
his debt to the Bank at and by the time the Bank is called
upon to pay the interest and the principal of its own bonds
to the holders. If the borrower should default his annuity,
the Bank, by a special summary procedure may, after 30 days'
notice, take possession of the mortgaged property and sell it
at public auction. Besides this judicial privilege the bonds
of the Bank have been made legal investments for all persons
and purposes and have been purchased in large amounts by
the Chilean Government, not only because of their intrinsic
soundness but in order to give them a popular currency.
The bonds are guaranteed by the state, which has for its
own protection the mortgages taken from borrowers and the
reserve. The reserve fund at present, however, is small,
amounting to only 3.335 per cent of the face value of the
total bonds in circulation. The state has suffered severe
losses on several occasions on account of this guaranty.

The Banco Hipotecario del Uruguay, formerly a private
company, was converted into a public institution about two
years ago. It is authorized to' grant loans up to 60 per cent
of the value of the land. Its bonds are actively dealt in on
the stock exchanges of Uruguay, and find a market in some
European countries. The bonds are secured by the first
mortgages taken for the loans, and are guaranteed both as
to principal and interest by the Uruguayan Government.

In 1913 Costa Eica founded a state 'land mortgage bank
similar to that of Chile. A new feature was added to the
law, however, in order to force capitalists to buy the bonds of
the bank. The deposits of all individuals and corporations
in commercial and savings banks are taxed two per cent
whether they are drawing interest or not. At the same
time the bonds of the state mortgage bank were exempted
from taxation and made lawful investments for the funds of
guardians and trustees and acceptable by the state in all
cases ia which the law requires the deposit of cash or security
to assure the faithful performance of public duties.

206 EUEAL CEEDITS

In 1911 the Territorial Bank of Cuba, a private joint-
stock company with a capital of $5,000,000 with right to
indefinite increase thereof, was given an exclusive monopoly
for 60 years to issue bonds or other instruments of credit
on the basis of reducible short- or long-term loans secured by
mortgage on real estate situated in the Eepublic. The maxi-
mum interest on loans is fixed at seven per cent, and the
bank is required to devote a part of its capital to the needs
of agriculture.

It remains to complete the survey of land-credit systems
only to describe one of the latest of European development,
the use of life-insurance policies as security for loans. Dur-
ing the first epoch of its history and even down to the mid-
dle of the past century, the institutions which handled life
insurance were not aU especially and exclusively devoted to
that purpose, as is generally the case today. Banks and
various moneyed concerns frequently carried on insurance
in connection with their other business. To mention a few
out of many instances, the Discount and Mortgage Bank of
Bavaria, founded in 1835 at Mimich, had life insurance as
one of its objects. The Eent-Charge Bank, founded shortly
afterwards iu the Grand Duchy of Hesse-Darmstadt, issued
and sold tontines and life policies. Several old trust com-
panies in New York and Philadelphia are operating under
charters with similar provisions, although they have not made
use of them for many years.

However, ftnance and insurance are intimately aUied, and
the idea of protecting the claims of a creditor by insuring
in his favor the life of the debtor was put in practice at an
early date and is now gradually spreading. Another applica-
tion of insurance quite common in European cities is the
taking out of a policy by the purchaser of a dwelling to cover
any balance of the price unpaid at his death, so as to save
his family from the possibility of being deprived of the
property by the mortgagee. This latter idea more recently
has been adopted for country districts, and in Germany,
Belgium, France and Hungary plans have been devised and
actually carried out for completely replacing mortgages by

LAND CEEDIT OUTSIDE OF EUROPE 207

life-insurance policies as security for long-term mortgage
loans.

The East Prussian Landschaft was the first institution
to take such a step ia Germany. In 1910 it created an in-
surance company and endowed it with $240,000 in 3.5 per
cent debentures. Policies may be issued on the lives of mem-
bers of the landschaft and of all other residents of the prov-
ince. The landschaft uses the annual instalments which its
borrowing members pay on the principal of their loans as
premiums on the policies obtained from the company, and
in this way these members are insured up to the full amount
of their loans without being required to pay anything in addi-
tion to their annuities. Other policy-holders also get cheap
insurance, because the company is purely altruistic, distrib-
utes no dividends, large salaries or commissions, and so con-
ducts its business at less cost than other insurance com-
panies. Public insurance companies of a similar nature have
been founded in West Prussia, Pomerania, Posen, and Silesia,
with the assistance of the landschafts in some cases, with,
the object of dismortgaging the land, popularizing insurance
among farmers, and preventing the large joint-stock com-
panies from drawing money away from the agricultural
regions.

In 1910 also France by law authorized the cooperative
credit societies belonging to the system called the Credit
Agricole to accept the policies of the National Assurance
Society in place of mortgages as security for loans made for
acquiring or improving small homesteads. In 1911 Himgary
followed by allowing the Hungarian Central Society for
Cooperative Credit to do the same with members of aflBliated
cooperative credit societies, the company with which it was
permitted to do business being the First General Hungarian
Life Insurance Society. In both these countries the coop-
erative society may advance to the applicant or member a
sum of money sufficient for him to purchase by one single
premium a term policy for the length of the loan, to protect
the society from loss of whatever amount remains unpaid
should he die within that time. This premium is added tO'

508 EFEAL CREDITS

-the loan, and the policy is made out in favor of the society
or assigned to it and used as security for its claims in place
•of a mortgage. In the event of death the cooperative credit
society receives the proceeds of the policy from the insurance
•company, applies them towards settling all its claims against
-the decedent, and turns the property over to his heirs free
and clear of all encumbrances.

This arrangement is available of course only for the
sound and healthy, nor is it of much service to them unless
-they be under middle age and can obtain money at very low-
interest rates, in spite of the fact that the French and Hun-
garian insurance companies give a preferential rate of in-
surance to this class of business. This reduction is possible
because the risk decreases as time progresses, since the loan
is amortizable and the unpaid portion for which the insur-
ance company is liable grows smaller year by year by the
annuities or instalments on the principal which the bor-
rower is obligated to pay every six months. In France, where
-the cooperative societies make loans at 2.5 per cent with
money supplied by the Government, the annuity required
for extinguishing a loan without insurance in 15 years is
$80.76 per $1,000. For such a loan with insurance premium
incorporated for a man between 30 and 31 years old, the
annuity is $88.75, a difference of only $7.99 per $1,000.

CHAPTEE XIX

THE PUINCIPLES OF LAND CREDIT AND THEIR
APPLICATION

Distinguishing Feature of land-credit Institutions the Power tO'
Issue Debentures. — These Not Possible to Usual Money Lenders.
— Private Institutions and Landschafts. — Loans Made to Spe-
cial Classes. — ^Regulations and Powers. — Organizations of Euro-
pean Countries Compared. — Security of Loans. — TJnrecallable
Long-term Debenture Necessary for Long-term Credit. — Situa-
tion in United States and Europe. — Comparison of Silesian
Landschaft and Possible Organization in Kansas. — Wisconsin
Land Mortgage Associations Act. — ^Land Bank of the State of
New York. — ^Rural Business of Savings and Loan Associations.
— Ohio — CoUeetive Saving Different from Cooperative Credit. —
Desirability of American Landschafts.

The foregoing chapters show the various forms which
land credit has assumed in the European and the few other
countries in which it has been organized. They do not
attempt to give, of course, a full account of all institutions
actually existing. This would have involved useless repetition,
since many of them are exactly alike. Nor has more than
passing notice been directed hitherto towards individual
money lenders, companies and banks which take mortgages of
real estate simply by way of investment for otherwise unpro-
ductive funds, because there is nothing of especial interest in
their methods except in Germany, Great Britain and Ireland.

In Germany a very heavy business in second mortgages
at high interest rates is done by individual money lenders,
because of the fact that a borrower is unable to realize on
the full credit value of his property in a loan from the land-
credit institutions on account of their exceedingly conserva-
tive appraisals and the wide margin demanded for security.

209

210 EFEAL CEEDITS

In Great Britain and Ireland there are no private bond and
mortgage institutions, except for land improvement projects.
Some attribute their absence to defective registration laws,
but it is perhaps due to the firmly established custom of ac-
cording land credit on recallable loans and to the very satis-
factory results of this practice which arise from local condi-
tions. /

As a rule in the British Isles the principal of a recall-
able loan may be recovered within a few weeks at the will of
the lender, who may exercise this right to raise the interest
rate whenever money is dear. As a matter of fact, however,
this is rarely done, or if it is done the rate written in the
mortgage is quickly restored, because the English market,
regulated by the great mart of London, is generally steady.
As a consequence, interest rates in the British Isles compare
favorably with those in countries where land credit is highly
organized, and there is thus no pressing need of substituting
special institutions for the present English system of private
money lenders, individual or incorporated.

With the exceptions noted, nothing material to the sub-
ject has been omitted from these chapters, while every orig-
inal type of land-credit institution or system and important
variant has been described with sufBcient clearness, it is
hoped, to furnish a basis for a brief analysis and explana-
tion of their underlying principles. The distinguishing
feature of land-credit institutions, it will be recalled, is
the power to issue interest-bearing mortgage bonds or deben-
tures. European land-credit laws relate only to institutions
having or seeking this power, and institutions are hardly
considered to have a land-credit character in Europe until
they are so empowered. Furthermore, the granting of long-
term loans, that is, for periods of 10 to 75 years or more,
is so generally their practice, that it may be said that this
is the chief if not the only reason for bringing them into
existence. There are notable exceptions in this regard, as,
for instance, the joint-stock land mortgage banks of Germany.
These banks, however, operate in a large measure with their
own capital stocks and demand urban properties as security

PRINCIPLES OP LAND CEEDIT 211

for practically all their loans. There are no exceptions in
the case of institutions dealing exclusively or to a large
extent with rural properties.

A farmer who makes his living solely by agriculture can-
not pay the purchase price of land or the cost- of permanent
improvements except as he* recovers their value from the net
gains of his industry, the surplus after he has paid his taxes,
interest, and cost of upkeep and repair of his property and
the support of himself and family. These gains come as
much from manual labor as from the beneficence of nature.
Like the proceeds from all manual labor, they are slow in
accumulating, and unless artificial or outside means are em-
ployed, they diminish as the years advance and the fertility
of his land is exhausted. He is his own hired hand, worked
the harder because he is his own employer, giving to others
the larger portion of the fruits of his toil until he owns his
farm free and clear of aU encumbrance. After that, he be-
comes a capitalist, it is true, but stiU a laborer, a capitalist-
laborer, the productivity and increase of whose capital depend
constantly upon his own personal labor and supervision. His
only alternative is the temporary and uncertain tenure of a
rent-paying tenant.

With the annual yields of capital thus limited by the
personal supervision and labor actually applied, to it, a
farmer should not expect to be supplied with money for lift-
ing old debts or acquiriag new property by individual money
lenders, savings banks, commercial banks or any concerns
that require a reasonably quick turnover of their funds. The
maximum time allowed for paying off loans for such pur-
poses is 30 years in Finland, 33 years in Chile, 36^/^ years in
New Zealand, 42 years in Australia, 50 years in Italy and
Japan, 54^^ years in Austria, 55% years in Russia, 56%
years in Germany and Sweden, 57 years in Switzerland, 60
years in Denmark, 63 years in Hungary, 68% years in Ire-
land, and 75 years in Prance. And the annual dues, includ-
ing interest, cost of business, and the fraction of the prin-
cipal required of the borrower for amortizing the debt, form
an annuity of only 3% to seven per cent of the principal of

313 KUEAL CEEDITS

the loan. In other words, the farmer in the countries named
is given at least one generation and in some cases more
than two generations for paying back a loan, as against three
to five years in the United States, while the annuity is smaller
on the average than the interest rate alone ia the southern
and western states. This annuity is always so fijxed as to
leave the farmer enough of his revenues to live on and pay
ordinary expenses, and thus never being called upon to pay
in lump at a time when it might be difiScult or disadvan-
tageous for him to do so, he is able gradually to relieve him-
self from debt by the yearly returns from the soil.

These long-term reducible mortgage loans are never
granted by individuals or ordinary money lenders. They are
granted only by the land-credit institutions from funds prac-
tically all drawn from the investing public through the issue
of mortgage-bonds or debentures. These institutions are
either public or private, though a more exact classification
would include a separate heading for such as are semii-public.
The pervading presence of the state in Europe at the initia-
tory stage of many of the old institutions, however, often
makes it difficult to distinguish between the semi-public and
the one or the other of the main classes. The public insti-
tutions, owned and operated by the state, are usually mere
governmental bureaus without share capital, which obtain
funds for granting loans either by appropriations or by the
issue of debentures guaranteed by the state. The profits,
if any, are used for extending business, set aside for meeting
losses, or devoted to some public purpose.

The private land-credit institutions are either associations
of borrowers or joint-stock companies. The semi-public land-
credit institutions, or those in which the state is a part
owner, participates in the control or management, or as-
sumes a responsibility of some sort, may be similarly classi-
fied. The joint-stock companies aim to make profit and,
unless they are semi-public, strive to declare as large divi-
dends as possible. The proportion of the surplus which may
be annually distributed in dividends is never limited, pro-
vided the institution is not purely eleemosynary, but it may

PEINCIPLES OF LAND CEEDIT 213

be subject, however, to a regulation, such as that all profits
over a five per cent dividend on the capital stock each year
shall be written to the reserve until this fund equals one-
half of the capital stock.

The associations of borrowers, or landschafts, have no
capital stock or lucrative object, and if they happen to ac-
cumulate a surplus from earnings or savings, it belongs to
the members and is distributed in rebates of principal and
interest in proportion to the amounts paid up on their
loans. The old German landschaft is the original type of
land-credit institution. Modified forms of it exist in Sweden,
Denmark, Eussia, Austria-Hungary, Eoumania, Switzerland,
Italy and Prance. Except in Denmark, the landschafts are
distinctly rural, being composed almost entirely of owners
of farm lands and confining their busiaess to granting long-
term loans on such lands of their members.

The plans of administration of the European land-credit
institutions are similar in the one respect that they are all
based on the general idea of vesting the control of the insti-
tution, the actual management of its business, and the in-
spection and audit of its affairs in three separate and distinct
bodies of officials, the last of which is absolutely independent
of the others. The first body is the board of directors or
executive council, which includes the president, elected in
the private institutions by the shareholders, and in the land-
schafts by representatives of the members with approval of
the Government. The second body is composed of the presi-
dent or managing director and vice-presidents charged with
such duties as he or the directors assign to them. For the
third body there is sometimes a standing committee of audi-
tors elected by the shareholders or appointed by the Govern-
ment. In Germany the Government appoints a fiduciary
agent for each land mortgage bank, who holds in trust all
mortgages used as security for bonds and countersigns all
bonds issued. But whatever the method of selection, tbe sup-
ervisory authority may sit at all meetings of the officials and
shareholders, may inspect all books, cash and accounts, and
may put a stop, either by direct action or by appeal to the

214 EUEAL CEEDITS

Govermnent, to any transaction of which he disapproves.
These supervisors, inspectors, censors or auditors, although
they may be paid by the institution, are in no wise beholden
to it. Their chief functions are to stand between the institu-
tion and the bondholders, to protect the interests of the lat-
ter, and to prevent violations and transgressions of the laws.
They and the responsible head of the institution — ^the presi-
dent in some countries, the board of directors in others —
are amenable to the Government for the proper conduct
of the business and afEairs of the institution. The Minister
of Agriculture or the Minister of Finance, acting directly
or through a commissioner or bureau, is designated as tho
general supervising authority, and periodical reports must
be filed with him showing the interest rates and amounts of
loans made, repaid and outstanding, the amount of deben-
tures issued and in circulation, and their interest rates and
market quotations.

The business of the European private land-credit com-
panies or banks usually embraces, besides mortgage loans to
individuals, loans without mortgages to railroads, public-util-
ity corporations, municipalities, public corporations and co-
operative societies. Indeed the greater portion of their busi-
ness consists of loans to incorporated and associational bor-
rowers and large landowners. Loans for small sums con-
stitute a meager proportion and the amount of long-term,
reducible or amortizable loans is negligible. There are two
reasons why the private land-credit companies or banks of
Europe do not handle many small or long-term reducible farm
mortgages. The first is, that they find it more easy and
profitable to make loans on urban properties or to the various
corporations and municipalities which the laws permit them
to finance. The second reason is that few of them have the
necessary standing and confidence of the public to enable
them to issue and negotiate unrecallable long-term deben-
tures. An investor will not buy a bond which has no set
time for redemption or the return of the principal unless
the issuing institution is so large and solid that there is no
question of its endurance and solvency. So, failing in at-

PEINCIPLES OP LAND CEEDIT 215

traeting money for long term from the inyesting public, the
European private land-credit companies or banks are not in
a position to grant long-term loans to any great extent.

The European public land-credit institutions make loans
only for specific purposes or to special classes of persons.
Hence, unlike the private institutions, they require that the
money obtained on a loan shall be used for the particular
object for -vrhich it was requested and granted. All of them
"were organized and still are operated either for financing land
reclamation and improvement projects, or else for carrying
out the policy of the Government in respect to the erection
of dweUiug houses for workmen or the creation of small
holdings for poor farmers. The first class of public institu-
tions may extend financial aid to rich or well-to-do farmers.
They grant credit not only on the actual present value but
also on the estimated value of the land as reclaimed or im-
proved. This means that the security is in part personal or
speculative, and thus they do not aU come within the strict
definition of a land-credit institution. The second class of
public land-credit institutions never assist farmers or persons
who are able to take care of themselves. Their sole object
is to help the poor whose condition is so abject as to preclude
them from credit from any other source.

The weU-to-do European farmer is yet too proud to seek
free or cheap money from the state to enable him to acquire
or improve a farm. There are, however, conspicuous excep-
tions in Eussia, where the tenure of land is stUl undergoing
readjustment as a result of the abolition of the feudal sys-
tem in 1861, and in Great Britain and Ireland, where the
nationalization of all land is making headway through the
socialistic tendencies of the Government. Much of the land-
credit legislation of many European nations was enacted with
the object of enabling poor and dependent persons to acquire
dweUrag houses or small holdings. In fact, only in Germany,
Prance, Sweden, Denmark, Eussia, Switzerland, Austria-
Hungary and Italy are there mortgage-bond or debenture-
issuing institutions which do any considerable business with
the owners of large or medium-sized estates, while in these

216 ETJEAL CEEDITS

coTintries that part of the business which consists of long-
term loans is handled almost exclusively by landsehafts or
semi-public land-credit institutions. Private institutions seem
to be unable to grant loans for a longer term than five or ten
years at most.

The rules and regulations which govern the operations
of these institutions are very strict. The size of an individual
loan is rarely over two-thirds the value of the mortgaged
property, carefully calculated by arbitrary formula. Usually
it is one-half the value, and only properties yielding or capa-
ble of yielding a steady and permanent revenue may be used
for security, the general rule being that the revenue must
equal at least the annuity which the borrower obligates him-
self to pay.

The loans are secured by first mortgages and are repay-
able by annuities. The institutions have the advantage of
special summary legal processes in order to protect their
rights and assure prompt and regular payments. These relate
to the proving of the title of the property offered to be mort-
gaged and to the recovery of defaulted dues. The processes
for proving title are similar to the Torrens system, speedily
settle questions affecting the title of the land, and enable the
owners to obtain loans without delay. In substance this
process consists simply in publishing a notice in the official
newspaper of the fact that a mortgage is about to be placed
upon the property described, and warning aU persons who
claim an interest therein to present their claims for adjudi-
cation within a few days or weeks. If such claims are not
presented within the time allowed or if they are thrown out
of court, the institution may safely grant the loan because
no person with a hidden or prior claim can attack its rights
under the mortgage.

The process allowed for the collection of defaulted dues
from borrowers is equally swift and effective. The mort-
gage on property the title to which has been adjudicated by
the process described makes the institution practically the
owner of the property until the loan is conipletely extin-
guished. It has the right to take possession of the property

PEINCIPLES OF LAND CEEDIT 317

upon non-pajrment of a defaulted annuity after legal demand
without appeal to the courts or intervention of law. The
delinquent cannot dispute the records of the mortgage nor
the entries in the books of the institution. Moreover, no
third party may interfere. The claim of the institution takes
precedence over every other claim except taxes, and even
the courts cannot issue an injunction against it. The institu-
tion's of&cers or agents have powers as public bailiffs or con-
stables, and may hold the property and farm or rent it until
the defaulted annuities have been entirely recovered. If this
sequestration is not effectual in realizing the claim, the insti-
tution may then request the court for judgment against the
debtor and an order of sale against the mortgaged property.
The court must render its decision summarily upon the docu-
mentary evidence furnished by the institution. No oral
evidence need be heard. If the debtor or a third party be
aggrieved his remedy lies in a separate suit for damages,
in which, however, this decision of the court cannot be col-
laterally attacked. These drastic proceedings for the recov-
ery of debts are not allowed private land-credit institutions,
but they are always given to public and semi-public insti-
tutions and landschafts. They may be resorted to not only
for defaults but also when the value of the mortgaged prop-
erty becomes impaired or the borrower violates his contract
in any way.

A study of the European situation shows that Germany,
Sweden, Denmark, Switzerland and France have the best
systems of land credit. The German system consists of pro-
vincial landschafts, provincial public banks, and land mort-
gage banks organized under an imperial law. Absolute free-
dom of action is allowed by the laws, and as a result institu-
tions of every known variety operate side by side in Germany
in free and open competition. Land credit if not cheaper
is at least more facile there than in any other country.

In Sweden a central semi-public institution, created by a
special act, operates in conjunction vrith ten district land-
mortgage associations similarly created, and none other may
be formed without the consent of the Crown. The central

218 ETJEAL CEEDITS

institution, called the Swedish General Mortgage Bank, ad-
vances money to the district associations upon the assign-
ment of mortgages which the associations take from memhers.
Members of each association are joiutly and severally liable
for the money so received. The objectionable feature of the
Swedish system is that the bank is too closely connected
with the Government and enjoys a monopoly.

In Denmark there are 14 land mortgage associations of
the landschaft type for first mortgages, and nine for second
mortgages on small estates. The Danish associations are the
best adaptation of the landschaft outside of Germany. The
nine associations for granting loans on second mortgage on
small estates are the only ones of their kind in Europe, and
the only other country in which their practice is followed is
in the United States, by the Jewish Agricultural and Indus-
trial Aid Society.

In Switzerland there are semi-public institutions in the
various cantons. The Land Mortgage Bank of Berne is the
most important. It requires the guaranty of a commune on
every loan it grants to an individual. Its objectionable fea-
tures are that it has too many different powers and that the
canton is a part owner of it.

In France one large semi-public institution has been ac-
corded such valuable special privileges that it has been able
to kiU off competition and obtain a practical monopoly. This
institution is the Credit Foncier, which has been the model
in Europe for nearly all central la;nd-credit banks of the
joint-stock variety. The appointment of the president, vice-
presidents, and three of the directors by the state assures pub-
licity and honesty in management. Its objectionable feature
is the awarding of prizes at the dravmig of debentures for
retirement.

Institutions available for landowners in restricted areas
exist in a few other countries. In Eussia there is a land
mortgage association of the landschaft type for Finland, a
territorial credit institution of the same type for the Baltic
provinces of Livonia, Esthonia and Kurland, and an institu-
tion for granting long-time loans to noble proprietors in

PEIKCIPLES OP LAND CREDIT SJ9

Poland. In Austria-Himgary there are several associations
of the landsehaft type which cover a certain portion of the
dual kingdom. Northern and central Italy are served by
one large joint-stock mortgage company and a number of
benevolent savings banks. The Italian laws do not contem-
plate monopoly. However, they require a special license
for each bank and at present these banks monopolize the
field in their respective areas.

Loans granted by private land-credit institutions as a rule
are in cash, but those granted by landschafts are in
debentures of the exact amount and interest rate of the note
and mortgage for which they are exchanged. Semi-public
land-credit institutions also sometimes make loans in deben-
tures. The borrower obligates himself to pay the interest of
the debentures he receives, and in addition thereto his share
of the cost of running the landsehaft and keeping up the
reserve and a fraction of the principal of his loan each
year. These items form his annuity, which is divided into
halves and paid semi-annually. When the annuities are col-
lected by the landsehaft they are split up into their com-
ponent parts for their proper uses, and the fraction of the
principal which the borrower pays to extinguish his debt is
placed in a sinking fund for the amortization of the deben-
tures. Borrowers have the right to hasten the extinction of
their loans by making voluntary payments into the sinking
fund. Moreover, on certain conditions they may withdraw
the balance to their credit in the sinking fund and use it as a
new loan, thus continually renewing their credit as they
please.

This sinking fund is not left to accumidate until it equals
the aggregate amount of a series or any given amoxmt of
debentures, but every six months a drawing is made and
debentures are selected by lot, according as their numeros
come out of the wheel, for retirement up to the amount of
money on hand in the sinking fund. In Italy and Japan
debentures must be withdrawn not only up to the amount of
money on hand in? the sinking fund, but also up to that
amount as increased by the addition of the amount of the

220 EUEAL CEEDITS

defaults of debtors during the preceding six months; this
■wise provision of the Italian and Japanese laws prevents bad
loans from long being used as security for debentures. If the
sinking fund is not disposed of by retiring debentures, it
must be used in making new loans or in buying up the
institution's own debentures for cancellation or investment.
Consequently, there is no cash lying idle in the sinking fund
to tempt officials into speculative ventures or into carrying
on any business other than that for which the institution is
intended. The reserves must be employed in the same way
or invested in bonds of the Government, municipalities or
government railroads. Eeserves are obligatory for aU kinds
of institutions.

By reason of the peculiar method of making loans, the
landschaft does not need to have a capital stock or to keep
large funds on hand. ISTor is it necessary for it to hire agents
to sell its debentures. The borrowers act as its agents, except
where bureaus have been opened for their convenience. The
debentures are not issued in series but bond by bond as mem-
bers avail themselves of their credit; thus a mortgage loan
is taken before each debenture is issued and the retirement
of the debentures keeps pace with the paying off of the loans.
Consequently, the face value of the debentures in circulation
never exceeds the amount of the outstanding loans. The
preservation of this equilibrium is the only limit fixed for
the amount of the loans which may be granted or the deben-
tures which may be issued. Within this limit the landschaft
may continue its operations until all the demands in its
territory have been supplied. The Danish landschaft associa-
tions for large estates arrange their members ia groups
according to the periods in which they join, and the indi-
viduals of these groups are severally and not jointly liable on
the debentures exchanged for their own loans but not for loans
to individuals of other groups ; to that extent the debentures
in Denmark are issued serially.

The debentures of joint-stock land-credit institutions are
usually issued in series, authority being obtained therefor
from the Government upon resolution of the board of direc-

PEINCIPLES OP LAND CEEDIT 221

tors, but are never negotiated in advance of making at least
an equal amount of loans. The rule prescribed for the land-
schafts for preserviag the equilibrium between debentures in
circulation' and outstanding loans applies also to them. In
addition to this the extreme limit of debenture issues is fixed
at a certain number of times the capital stock and reserve.
The maximum for the land mortgage banks of Germany
is 15 times, and for the Credit Foncier of France 20 times,
the capital stock and reserve. The purpose of this additional
rule is to prevent a company from becoming too large to be
managed properly and from absorbing the entire business of
the country. Usually the debentures are negotiated to recoup
the amount taken out of the capital stock or other funds of
the issuing company for loans already made. The Credit
Foncier of France, however, may sell debentures for the pur-
pose of financing loans yet to be made, but the proceeds of the
sales must be invested in government bonds or similar safe
security pending their regular employment.

Loans made by the joint-stock land-credit institutions
may be for the same periods and for the same amounts in
proportion to the value of the mortgaged premises as those
of the landschafts. There is a difference, however, in the
uses made of the annuities. The joint-stock institutions
usually include the costs of business in the computation of
the interest rate and always deduct a portion for profits.
Nevertheless, the actual charge to borrowers is about the
same in both kinds of institution. This is due to the fact
that any advantage which the landschafts may derive from
the gratuitous service of officers and the compulsory service
of members is offset by the cumbersomeness of their bureau-
cratic methods and by the superior energy of the officials of
the companies, who are spurred on by good salaries and the
demand of stockholders for dividends.

The regulations in respect to the investment of the sink-
ing fund and the retirement of debentures are the same for
aU concerns. Debentures must in all events be redeemed at
par regardless of their market quotation at the date of issue
or redemption. If the debentures of a landschaft are dis-

222 ETJEAL CEEDITS

counted below par, the borrower loses the amomit of the
disagio ; but, if a company negotiates debentures below par, it
must foot the loss, of course, since the sales are made on its
own account and no.t on that of its borrowers. The retire-
ment of debentures by drawing lots subjects the holders to
the possibility of having their money returned to them when
they are least able to reinvest it profitably. This iaeonven-
ience is compensated in some countries by allowing the com-
panies to redeem with premiums. The Credit Foncier gives
prizes; this is one of the special privileges which make this
great bank the dictator of land credit in France.

The debentures are secured, first, by the mass of mort-
gages taken for the loans, next by the reserves and in some
instances the guaranty fund, and finally by the share cap-
ital in the joint-stock companies, by the collective liability,
limited or unlimited, of members in the landschafts, or by
the guaranty of the state in the public or semi-public insti-
tutions. Sometimes in the latter institutions a fund created
by subsidy is substituted for the state guaranty. Inasmuch
as the debentures are not recallable except at the will of the
makers, the holders may not touch the principal until it has
been declared to be due after the drawings, and even then they
have not always the right to sue the institutions for it. Some-
times debentures are worded to be redeemed within a speci-
fied period, as 25, 50, 75 or 98 years, but this does not alter
their effect. The assets, including the annuities due from the
borrowers, are protected from all litigation except bank-
ruptcy proceedings. The debentures are merely certificates
of indebtedness secured by a fioating charge against the gen-
eral assets and standing of the issuing institution, although
in the event of the winding up of its affairs, they would
have a lien prior to aU other of its creditors on the mortgages
used as the basis of their issue.

The imrecallable long-term debenture is absolutely essen-
tial to the according of long-term credit. No concern could
grant long-term loans if it were required to retire debentures
at a faster rate than it can refund the principal by the annui-
ties received from its borrowers. The great obstacle to the

PEINCIPLES OP LAND CEEDIT 233

organization of land credit is the difficulty of popularizing
the unrecaUable debentures, of selling bonds which contain
no clause obligating the maker to return the investment to
the holder at some jBxed date. With the view of overcoming
this difficulty, aU countries have surroimded the issue of these
debentures with safeguards and attached certain privileges to
them so as to make them attractive to investors. They may
be drawn in denominations as small as $20, payable to bearer
or in the name of the holder as preferred, and may be pur-
chased in instalments. As a rule they are not taxable either
at issue or transfer. Whenever they are taxed, it is done in-
directly by taxing the institution itself on the total amount
of debentures issued or on its business or assets. The deben-
tures are exempt from seizure and sale on execution, and are
usable by the Government, courts and trustees for investment
of all kinds of funds. The debenture is considered a real-
estate security to the same extent as the underlying mort-
gage and far superior to it because of the fact that the deben-
ture splits up the loan into easily negotiable parts.

Thus, in all European countries where land credit has
been organized, the safest kind of securities available for
large and small investors are these privileged debentures se-
cured by mortgages on properties with unassailable titles, or-
dinarily worth twice the face value of the mortgages. The
payment of interest and principal is assured by strict govern-
mental supervision which prevents over-issue and which
reserves the annuities of borrowers for their ultimate redemp-
tion. The older the debentures become the sounder they are,
because of the fact that their sinking fund is constantly in-
creased by the annuities paid into it, or else that the liabil-
ities of the institution are reduced by the half-yearly retire-
ments of other debentures. The savings of the poor as well
as those of the rich are readily attracted by these absolutely
safe and highly negotiable securities, and as a resiilt there
is no European landschaft or semi-pubUe land-credit institu-
tion which does not find all the funds it requires at the
lowest interest rates for making long-time loans to its bor-
rowers. Such facilities, however, are not possible at present

224 EUEAL CREDITS

in the United States, where the land, the mortgage, and the
debenture all are taxed. This triple taxation will have to be
removed if American farmers hope to obtain cheap land
credit.

Besides this favorable legislation for debentures, the tax
exemptions and the special proceedings allowed for examining
titles and recovering loans, some of the land-credit institu-
tions have been granted monopolies and many are allowed
the free use of the mails. None has to register its mort-
gages every ten years as is required of ordinary lenders. In
France the Credit Foncier enjoys the free service of the
internal revenue officials for collecting and paying interest,
annuities, and principal on loans and debentures. In former
times subventions were frequent. Some of the landschafts
of Germany and Denmark, the Credit Foncier of France, the
Mortgage Bank of Berne, not to mention others, received
subsidies from the state at their establishment. The sub-
sidies took the form of donations, loans without iuterest, the
purchase by the state of shares of the capital stock, the
guaranty of debentures, or the investment of public funds in
the debentures. But financial assistance is now no longer
extended except to institutions organized to help the poor to
acquire homes or small tracts of agricultural lands.

In the United States there is not a peasantry and pro-
letariat, except possibly among the southern negroes, so weak
and benighted as to need free money and state aid to enable
them to earn a living. State assistance of a general nature
may be extended without objection or danger in the early
stages of the organization of land credit. The state may pre-
side at the formation and even assist in the administration
at the beginning in order to give a proper direction to the
development of land credit. It is clearly the state's duty to
remove all obstacles which prevent the borrower and lender
from meeting on equal terms, and it should continually exer-
cise rigorous supervision and inspection for the purpose of
safeguarding borrowers from usurious oppression and the
investing public from dishonest and incompetent manage-
ment. The state may intervene in the event of overwhelm-

PEINCIPLES OF LAND CEEDIT 225

ing emergency to help farmers to recover from the effects of
droughts, floods, wars, public disorders, and widespread devas-
tations due to natural causes, or to finance projects too great
for individual enterprise, such as the reclamation of large
areas by drainage or irrigation. The use of the state's guar-
anty or of public funds for ordinary needs of farmers, how-
ever, would be class legislation which would work an injus-
tice to the rest of the population and sap the virility of the
intended beneficiaries. In nearly all countries in Europe
where direct financial aid has been granted it has led to
bureaucracy, favoritism and politics. The sole function of
the government in a republic composed of intelligent and in-
dependent citizens should be to open the way for entire free-
dom of action and to stimulate private initiative and compe-
tition by permitting land-credit institutions of various kinds
to be formed under general laws.

In Europe the land-credit institutions of the joint-stock
and dividend-paying type which grant long-term loans are
formed along the general lines of the Credit Poneier. With
a few ezceptions the scheme of organization and administra-
tion and the business methods of the great French model
have been more or less closely followed by all of them. The
ultimate security of their mortgage bonds or debentures is
their capital stocks, but the ultimate security of the deben-
tures of the associations of borrowers is the collective lia-
bility, limited or unlimited, of members. These associations
are of two classes, those which are private groups of indi-
vidual borrowers without any special privileges or connec-
tion with the government, and those which are semi-public
or public in character and possess all the various privileges
which have been devised to facilitate land credit. The orig-
inals of the latter are the Prussian landschafts, with which
the idea of collective liabUity of borrowers and also of the
debenture was conceived. The collective liability of groups
of borrowers has proved satisfactory and popular wherever
employed. The Prussian landschafts are generally recognized
as nearly perfect in respect to organization and administra-
tion, while it is also believed that if their business methods

226 EUEAL CEEDITS

■were modernized and made less ciimbersome, they ■would be
the best institutions in Europe for according long-time credit
on large or small farms.

Could landschafts be instituted in the United States?
Is there a field for extensive operations and usefulness for
such organizations, the oldest of land-credit institutions,
■which have been diffusing long-term credit on farm lands in
Prussia for a century and a half, have spread over almost
all of Germany, S^weden and Denmark, and have been intro-
duced in other European countries? The question deserves
an answer because no landsehaft has ever failed and all have
been able to find credit for their members at the lowest inter-
est rates and easiest terms. The answer can be best arrived
at by recapitulating the description already given of the
Silesian landsehaft, the first one formed, and then trying
to see ■whether in theory a similar institution could be adapted
to any state of the Union. Kansas, ■where agrieidture ■was
demoralized in part 20 years ago by faulty methods of credit,
may be used for this purpose, ia comparison ■with Silesia,
■where farmers are able to obtain long-term credit on the
easiest terms through the landsehaft ■which has been operating
■with uninterrupted success since 1770.

The Silesian landsehaft is not a joint-stock company or
even an association, properly speaking. It is a financial
system created by the state and made a part of the state, but
the state receives no dividends or compensation from it, since
any profits made are devoted to paying off the principal or
reducing the interest of the loans of borro^wers. Its sole
object is to find cheap long-term credit for farmers, and with
this in view it strives to make the debentures which it is
authorized to issue the safest securities which can be bought
in the market. Silesia is divided for the administrative pur-
poses of the system into nine districts which in their turn are
subdivided into two or more circles, in much the same way
as Kansas is divided into districts and counties for judicial
purposes.

The head of a circle is a superintendent elected by mem-
bers of the system residing within the circle. The head of

PEINCIPLES OP LAND CEEDIT 2%t

a district is a manager appointed by the Crown upon nomi-
nation of the members of the district. The head of the entire
system is the president appointed by the Crown upon the
nomination of all members voting by districts. Associated
with him are three vice-presidents similarly appointed. The
president and vice-presidents with two general counselors
selected by them constitute the executive council, which passes
finally upon the loans applied for by members, and makes
them by exchanging the landschaff s debentures for the bor-
rowers' notes and mortgages. Each district has a district
board composed of the manager, the superintendents of the
circles and a lawyer selected by them for its attorney. The
boards pass in the first instance on all applications for loans
coming from persons within their respective areas, and attend
to the sequestration of properties and foreclosures of mort-
gages in cases of defaults. In each circle there are periodical
meetings presided over by the superintendent, and at which all
borrowers who are not in default on their mortgages or who
have not violated their contracts in any way are entitled to
be present and vote as members.

The business and affairs of the SUesian landschaft are
conducted by these official central and district bodies. AU
owners of farm lands within the area over which the land-
schaft exercises jurisdiction have right to become members of
the system, but members have nothing to do with the ad-
mission or expulsion of members or with the granting, re-
caUing or renewing of credit. Their powers are confined
to voting at the elections for ofBeers and for delegates to
the general assembly of the landschaft, upon resolutions sub-
mitted to them from the boards or council, upon the annual
budget, and upon the question of raising funds for the land-
schaft when necessary. The landschaft, however, rarely needs
money. Members may be eompulsorUy required to act as
appraisers or caretakers of any properties falling into the
possession of the landschaft, under pain of having their loans
recalled in case of refusal so to act.

The supreme authority in the landschaft is the general
assembly. This body is composed not of members but of

228 ETJEAL CEEDITS

delegates elected by the members. It is convened only upon
emergencies and is represented in the interim by a perma-
nent committee composed of the executive coimcil, the dis-
trict managers, and a delegate from each of the districts
elected by the members thereof. The landsehaft is subject to
the general supervision of the Minister of Agriculture
through a special commissioner who makes regular inspec-
tions and receives the annual reports. Full particulars of
the powers and duties of the officials as well as the steps
which members may take on their own initiative for certaiu
purposes may be obtained by rereading the description of
this Silesian landsehaft. It must be remembered that the
landsehaft does not make loans in cash. It simply issues
guaranteed debentures to borrowers on their notes and mort-
gages and undertakes to collect the borrowers' annuities and
pay to the holders of the debentures the interest and priu-
eipal as they become due. The debentures are of two kinds,
on one of which the members are collectively liable without
limit, while on the other this liability extends only to the
members of the respective districts.

Now if Kansas should adopt the landsehaft, it could have
two landschafts each operating over an area at least equal to
that of Silesia, but preferably it should have but one, under
the supervision of the state bank examiner. The law enacted
for its establishment would divide the state into 20 districts,
assigning to each district about four counties, and provide for
the election of the necessary officials to be appointed every
six years by the Governor upon nomination of the members
of the system, exactly in the way in which this is done in
Silesia. These officials would serve without pay, and after
the first term they would be selected from among the bor-
rowers of the system. All resident citizens who owned
farm lands free and clear of encumbrance would be allowed
to obtain debentures from the landsehaft up to two-thirds
the value of the mortgaged property. The law should contain
a provision that it could not become operative in any dis-
trict except upon the request of farmers with properties of
an aggregate value of, say, $1,000,000.

PKINCIPLES OF LAND CREDIT 229

All borrowers would be made collectively liable without
limit for debentures issued to members withia their districts.
A person would become a member upon obtaining this credit,
and his mortgage would be so drawn as to give the landschaft
immediate possession ia case of default or whenever the land-
schaft should deem its security impaired or insufficient.
Upon the extraction of his debt a borrower's liability would
cease along with his membership. The expenses of the land-
schaft would be met by a small percentage added to the in-
terest rate. Each borrower also would be required to pay a
fraction of his principal every half-year, and also a small
contribution for forming a reserve which eventually would
become large enough to cover all possible losses and save bor-
rowers from ever being assessed on their collective liability.
The reserve and the sinking fund would have to be invested
in debentures of the landschaft or in bonds of the state, mu-
nicipalities or public corporations in Kansas. The sinking
fund would be employed every half-year in paying off deben-
tiires retired from circulation by drawing lots.

So this system of land credit, if adopted for Kansas,
would not call for any subsidy, expenditure, guaranty or lia-
bility on the part of the state or any subdivision of the state.
It would be based on the security of the combined farm lands
only of the persons who might wish to use the system's credit
facilities, and would enable the Kansas farmers to convert
all their three- and five-year mortgage loans into long-time
annuity contracts running for any periods they desired, even
up to 75 or 100 years, and repayable out of the annual farm
profits at a rate of interest as low as that at which the state
itself can borrow money. Surely the landschaft idea will be
introduced sooner or later into some of the states of the
United States, either as private or semi-public institutions,
in view of the fact that it has proved its efficacy for easy
long-term credit for farmers in eight European coimtries.

Wisconsin passed a Land Mortgage Associations Act in.
1913 which has been widely heralded as a step towards the
organization of land credit on correct principles for agri-
culture and cooperation. The Act, however, is nothing of

230 KUEAL CEEDITS

the sort and adds very little to legislation on the subject
already existing in the state. The associations contemplated
by this Act are mere private corporations with fixed capital
of a minimxun of $10,000 divided into $100 shares. Their
powers are to issue bonds on the pledge of first mortgages
given as security for loans on farm lands, forests and dwell-
ing houses located within Wisconsin. The loans are not
confined to shareholders but may be granted to any com-
petent person offering such security. Hence the associations
are not landschafts or associations of borrowers, nor are they
even cooperative, but are simply plain bond and mortgage
companies.

The bonds, the circulation of which for each company
is restricted to 20 times its capital and surplus, have been
made legal investments for trustee funds and public moneys
and may not be taxed if the taxes on the mortgaged prop-
erties have been paid by the mortgagor or the company. The
other provisions of the Act are of doubtful value. The
property offered in security must be appraised by two free-
holders residing in its locality appointed by the directors, and
the appraisal must be certified by the assessor of incomes
as not being over the true market value. The expenses of
the assessor are paid by the borrower. Now as no private
money lender, bank or ordinary company would take a secur-
ity without making an investigation in person or by in-
spectors paid by itself and over whom it had absolute control,
this provision standing alone has a bad effect, because it
might tempt the committee on loans into taking a security
recommended as a perfunctory act by persons in no wise
connected with the company or interested in its success.
Again, the notes and mortgages used as security for bonds
must be placed in trust with the state treasurer. This slight
precaution against possible dishonesty of the company's ofiB-
cials or clerks adds nothing to the soundness of mortgages
already duly filed and recorded. It would have been a great
deal better if private persons had been designated as the
trustees, thus guarding the public from being misled into
believing that the state was back of the bonds.

PEINCIPLES OF LAND CEEDIT 231

The wisdom of aUowing little bond and mortgage com-
panies to parade in the garb of officiality may be seriously
questioned, especially when, as in the case of the Wisconsin
so-caUed associations, they intend to grant long-term loans
without adequate assurances in. law for their endurance or
the integrity of their capital stock and reserves. No regula-
tion exists in Wisconsin for the fluid iuvestment of the
reserves. In Europe all companies have substantial capital
stock and all associations are composed of members whose
combined properties aggregate many hundreds of thousands
of doUars. The auditors iu Wisconsin are appointed by the
shareholders. In the best European systems the auditors
are public officials or else are so appointed that as a matter
of course they favor the bondholders and borrowers as against
the shareholders and the company.

Fortunately for Wisconsiu, however, the Act contains a
few sentences, inadvertently inserted, which makes it
practically inoperative. No loan may be granted except
with an annual amortization of at least one per cent of the
principal, that is, assuming that applicants for loans would
insist upon the average rate in Wisconsin of five per cent com-
pounded on their instalment payments, a loan which must
run for no shorter period than 36 years. A company, par-
ticularly a small one, dealing exclusively in that kind of busi-
ness cannot give that rate to borrowers for their instalment
payments and at the same time distribute satisfactory divi-
dends and set aside out of its profits each year an amount
equal to two per cent of its capital stock as required by the
Act. If it cannot distribute satisfactory dividends it cannot
sell its shares, while if it does not accumulate a reserve the
public will become distrustful of its bonds. Again, the Act
abolishes the usury laws for the so-called associations by
allowing them absolute discretion in imposing fines on bor-
rowers for defaults. Borrowers will never place themselves
at the mercy of such an association if they can find a lender
elsewhere. Equally unfavorable to the borrower is another
provision which prevents his selling his property when once
he has mortgaged it to the association unless he can find a

232 EUEAL CEEDITS

purchaser who will assume personal responsibility for his
debt. As a rule in the United States a purchaser acquires
only the equity of a mortgaged property and incurs thereby
no personal liability for the debt of the mortgagor, and this
custom would be hard to change.

In 1914 the laws of New York on saviags and loan asso-
ciations were amended to enable the associations in operation
to establish the Land Bank of the State of New York, with
headquarters in New York City. Savings and loan asso-
ciations have a variable capital consisting of dues and divi-
dends credited to members, either individually or in series,
and divided into shares of $100 to $200. They may be
formed for encouraging thrift and home-building, accumu-
lating savings and lending such accumulations to members.

Instalment shares, savings shares, accumulative prepaid
shares, income shares, and juvenile-savings shares, or any
of these kinds, may be issued at any time by an association
called permanent. A serial association must issue its instal-
ment shares in series and credit by series the dividends ap-
portioned to such shares, and no additional shares may be
issued in any series after a dividend has been once credited
thereto, unless the subscriber pays the book value of such
shares, together with all dues owing and accrued interest, so
as to place the original subscribers and himself on a par.
The method and length of time for maturing the shares of all
kinds are determined by the by-laws. An entrance, member-
ship or transfer fee may be charged, but in no case may it
exceed one dollar per member or share. The fines which
may be imposed for neglect or refusal to pay dues, interest, or
premiums may not exceed two per cent a month. A member
who is not a borrower may withdraw all accumulations on his
shares after sixty days' notice. No penalties may be imposed
for withdrawing. If receipts are not sufficient to meet ma-
turities and withdrawals, the board of directors or the Su-
perintendent of Banks may direct all claims to be paid upon
a ratable and proportionate basis. Thus the associations
operate with funds all coming from members and subject to
comparatively short call. A member must subscribe for at

PEINCIPLES OF LAND CEEDIT 233

least one share; he may hold more and vote them all if the
by-laws permit. Each association is managed by directors
elected by members. A guaranty fund must be created ulti-
mately to equal five per cent of its accumulated capital and
at least 50 per cent of the value of any real estate it holds.

Credit may be accorded only to members. A loan may
be granted on one or more than one of the various kinds of
shares if its amount does not exceed their withdrawal value.
As a rule, however, loans are made upon mortgage security,
the borrower at the same time pledging to the association in-
stalment shares having a matured value at least equal to the
amount of his loan. The dues on these shares, payable at
regular intervals specified in the by-laws, and the dividends
thereon are applied in reduction of his indebtedness.

The property ofEered as security must be situated within
fifty miles of the headquarters of the association. No loan
may exceed 75 per cent of the appraised value. An associa-
tion may lend up to the maximum on improved properties.
Land is considered improved if the improvements equal the
land alone in value. It may lend up to 60 per cent of the
value of unimproved properties. Land is considered unim-
proved if the value of the improvements does not equal that of
the land. It may lend up to only 50 per cent of the value
of vacant properties. Land is considered vacant if there is no
building upon it suitable for residence, business, manufactur-
ing or agricultural purposes. In such case the money bor-
rowed may be used only for erecting such a building and is
to be advanced as the work progresses. The total loans on
vacant lands must not exceed 15 per cent of the accumulated
capital of the association.

The yearly payments of dues and interest required on a
loan in excess of 70 per cent of the appraised value must not
be less than 12 per cent of the principal. At 6 per cent this
would mean 139 monthly instalments, if the interest be
charged on the balance, or 144 instalments, if interest be
charged on the face of the loan; or an extreme period of 13
years. The yearly payments of dues and interest must be not
less than 9 per cent of the principal, if the amount loaned

234 KTJEAL CEEDITS

is in excess of 60 per cent, and not over 70 per cent of the
appraised value. This gives an extreme period of about 18
years. No minimum is prescribed for the yearly payments
on loans whose amounts are below 60 per cent of the ap-
praised value of the mortgaged property: consequently the
annual payments and length of time of the loan may be left
to contract between the association and the borrowers. The
total expenses of an association must not exceed 2.5 per cent
of the annual dues actually received from members.

The money available for loans may be auctioned to the
highest bidder upon premium plans specified in the law,
which thus permits an association to charge interest higher
than the legal rate. If an association has more money
than it needs for loans, it may compel members to accept
the withdrawal value of their shares, or it may invest the
surplus in loans to other savings and loan associations, in
securities authorized as investments for savings banks, or in
first mortgages on real estate in New Jersey. The last pro-
vision was inserted through the influence of New Jersey
suburbanites who work in New York City.

These, in brief, were the statutory powers and methods of
New York savings and loan associations up to the year 1914.
There are in operation (1914) 241 associations with 161,880
members and $64,249,990 of resources. With three or four
exceptions they are as sound as any institutions, large or small,
in the state. They are the survivors of many associations
which were formed under bad laws subsequently repealed,
and managed on wrong principles at last abolished. Chief
among the objectionable features of the old laws was the
provision giving an association a free hand to operate
throughout the state. The surviving associations are local;
moreover, they are urban, their members living or working
in the towns and cities and their assets being invested in
mortgages on urban properties and in liquid securities. The
great majority of members are not borrowers, and the non-
borrowers in ordinary times by their savings supply the asso-
ciations with all the money needed for borrowing members.
For emergencies the associations themselves may borrow for

PEINCIPLES OF LAND CEEDIT 235

terms of one year or less, provided they do not allow their
liabilities to outsiders to exceed one-fifth of their acciumilated
capital. This would seem to be the widest limit compatible
with safety. It has proved, however, entirely safe; the asso-
ciations have kept well within it, borrowing only to relieve
stringencies, easily paying off their debts as they faU due,
uniformly distributing much larger dividends than the sav-
ings banks, and charging interest on loans at a lower rate
than the average lender. Year by year the associations in-
creased steadily in number and wealth. The law under
which they operated, particularly with this wise restriction
against incurring heavy outside liabilities, was considered
one of the best of its kind, and there was no necessity or even
an intimation of a demand for its change among the mass
of members.

The amendment of 1914, creating the Land Bank, has
wrought vital changes ia the New York law. It provides that
the Land Bank may be organized by ten or more associations
with aggregate resources of not less than $5,000,000, and
may be opened for business when $100,000 of capital has been
subscribed. The first ten associations which get together
may enact the by-laws of the Bank, to be submitted to the
State Superintendent of Banks, which must prescribe the
manner of caUing meetings, the number to -constitute a
quorum, the duties of the ofBcers, and the manner of their
election, and their terms of office. The by-laws when once
adopted can be changed only by resolution of the directors
approved by the Superintendent of Banks. Shareholders
have absolutely no initiative in this matter or right of par-
ticipation in the management, while it is possible under the
law for the original incorporators so to word the by-laws as
to make the first directors self-perpetuating for many years.
This could be done also by any subsequent board of directors.
Hence the Land Bank of New York is not cooperative in
organization or administration, although its membership is
eclectic and only savings and loan associations may be share-
holders. It is a domestic moneyed corporation with a vari-
able capital stock; when once it is organized under the law,

236 EUEAL CEEDITS

no other land bank may be organized, so it has an exclusive
monopoly of its field. Nor is it cooperative in objects since
it has power to do a general loan business in first mortgages
on real estate in New York and New Jersey and to receive
money and property from shareholders and all other persons
with whom it has contracts, engagements or undertakings.
Its loans to non-members may equal in amount 60 per cent
of the appraised value of the mortgaged properties : loans to
shareholders may equal 75 per cent of the appraised value.

The Land Bank of New York may issue bonds but only
upon notes secured by first mortgages made to or held by
shareholders and placed in trust with the State Comptroller.
The face value of the bonds must not exceed 80 per cent of
the value of the imderlying mortgages and the total in circu-
lation, including other indebtedness, must not exceed 20
times the amount of the capital of the Bank, presumably the
paid-in capital, although the law is not clear on this poiiit.
The bonds are exempt from taxation, as is the Bank itself to
the same extent as a savings bank. A portion of the profits
equal to one-half of one per cent of the capital must be set
aside each year for creating a guaranty fund idtimately
equal to 15 per cent of the capital, but inasmuch as the direc-
tors may invest this fund in mortgages there is no superiority
in it over the capital as obligatory security for bondholders.

The amendment of the law to enable the Land Bank
of New York to sell its shares to savings and loan associa-
tions, and to acquire the mortgages securing the savings of
the members of such associations for use as security for its
own bonds issued for sale to the public, does not affect the
manner of making loans except in one minor particular, but
it makes important changes in the regulations relating to the
investment of the savings of their individual members. For-
merly the law permitted loans to members only and on secur-
ities, apart from mortgages, authorized for savings banks.
Now, however, a savings and loan association may invest 10
per cent of the members' savings and its other resources in
shares of the Land Bank, besides buying bonds of this insti-
tution with any funds not needed for loans to members. In

PEINCIPLES OF LAND CEEDIT 237

addition, an association, if it has no debts or second mort-
gages, may pledge or assign 75 per cent of its mortgages and
securities either for cash or bonds of the Land Bank, or its
entire assets if members wlII assume joint and general un-
limited liability on the bonds. But the total liability to the
Land Bank must not exceed 20 times ten per cent of the
accumulated capital of the association.

Now since these mortgages, which represent the savings
of members, are at present the soundest kind of investment
and at the same time bear a higher interest than the bonds
of the Land Bank are likely to bear and are as profitable
as any safe investments which can be made out of the asso-
ciations' funds, what object has the amendment of the law
in authorizing such exchange or conversion? If an associa-
tion has more savings than it can invest in loans to mem-
bers, it is justified in seeking a safe investment for the sur-
plus, but it cannot find a safer investment than the secur-
ities authorized for savings banks. This is the logical impli-
cation of the clause in the law which requires the Land Bank
itself to use those securities in like case. If an association
needs cash in a stringency to meet liabilities to members, it
wotdd be good business, of course, temporarily to hypothe-
cate a portion of its assets to raise the necessary funds for
that purpose; but since an association must buy one dollar
of shares for every 20 dollars of bonds issued by the Land
Bank in its behalf, and since each share is $1,000 and only
ten per cent of the resources of the association may be in-
vested in shares, an association in a stringency would be likely
to find the services of the Land Bank of less practical value,
than those of an ordinary lender.

Another purpose for which an association might possibly
resort to the Land Bank of New York is for raising money
with which to make new loans. But in this case it would
place the funds of the Land Bank in competition vrith the
savings of its ovm members and reduce their dividends. A
loan, it will be remembered, must be secured, in addition to
a mortgage, by instalment shares subscribed by the bor-
rower and having a matured value at least equal to the

238 EUEAL CEEDITS

amount of his loan, and these shares may participate fully
in all dividends while shares of other kinds have only a re-
stricted participation. Hence the tendency would he for in-
vesting and saving members to drop out and borrowing mem-
bers to come in. This tendency undoubtedly would become
pronoimced in an association which should go the legal limit,
put ten per cent of its resources in shares of the Land Bank,
pledge or assign to the Bank 75 per cent or more of its
holdings of mortgages and securities, and guarantee bonds
received therefor up to 30 times what it had invested in
shares. What opportunity for the profitable investment of
the savings of members would be left to an association which
operated to this extent on funds of the Land Bank? With
the incentive to thrift thus weakened and only borrowing
members remaining, the association would lose its cooperative
character unless the borrowers should assume joint and sev-
eral liability for one another's loans.

The case is put in this extreme way merely to elucidate
the principles involved, without any intention to imply that
there may be positive dangers in the law. Nevertheless it
must be borne in mind that the New York savings and loan
associations are now automatically safe and sound, while, if
they should enter into relations with the Land Bank, their
future would become involved with that of an institution
whose success depends upon honest, conservative and efiBcient
management. EfiBcient management of such an ambitious '
financial corporation can be obtained only by the payment
of liberal salaries and other large outlays. The law recog-
■ nizes this fact by providing that the Land Bank may charge
shareholders a commission of one-half of one per cent and
redeem its bonds at 103.5 per cent. These expenses and
commissions must be paid by the savings and loan associa-
tions, and it is difficult to see how the reduction in interest
which might occur after a number of years would compen-
sate the associations for the risk and trouble assumed. If
the Land Bank were cooperative and there were a need or
desire for centralization, then of course there would be noth-
ing which the associations should not do to create a system.

240 KUEAL CEEDITS

subject to 60 days' call ? The explanation is that withdrawals
are discouraged by forfeiture of entrance and transfer fees,
the shares of borrowers are pledged to the association, and
the business generally is so arranged that the monthly pay-
ments* of borrowers suffice to meet dividends, the normal
amount of withdrawals and the matured value of shares. But
the chief reason, far above all others, is that the association is
cooperative, members lend their own money among them-
selves and with a true cooperative spirit accord easy terms
because of that spirit and of the mutual confidence and trust
which prevail in the association. In this way an association,
beginning with an issue of 50 shares with monthly dues of $10,
will soon have $1,000 which it can lend safely until the end
of the series, and so on. If the issue of new shares is suffi-
cient to give it a steady and dependable inflow of capital, it
will be able to lengthen the period of the loans. Loans of
ten years are frequently granted, but they are always repay-
able on the monthly instalment plan. An association ob-
taining its fimds from withdrawable shares cannot, of course,
invest all its assets in long-term loans ; there is a limit both
to amount and to time which it would be dangerous to over-
step. The Ohio savings and loan associations have invested
$11,147,733 in farm mortgages. This is less than one-sev-
enth of their total assets, and it has proved entirely safe,
although some of the mortgages run for 16 years. Neverthe-
less it would be advisable to exercise caution in extending this
practice. Long-term loans prevent quick turnovers of cap-
ital, and thus are not as profitable as short-term loans and
tend to reduce the size of dividends. The Ohio associations
dealing with farmers have been compelled to change their
highly profitable instalment regulations and allow semi-
annual payments and even payments in lump at the end of
the term.

There is no reason why savings and loan associations in
other states should not follow the methods adopted in Ohio,
admit some farmers to membership, and grant long-term
loans to a limited extent. This would not only open up a
new source of loans for agriculture but also would strengthen

PEINCIPLES OP LAND CEEDIT 241

the associations by increasing their assets. It is doubtful,
however, -whether any large degree of success will attend
the efforts being made to form associations composed exclus-
ively of farmers. In agricultural regions there are not many
salaried or wage-earning persons. Contrary to the case in the
cities, the rural residents are more willing and able to bor-
row than to set aside savings at interest or for dividends.
Farmers, even tenants, are in business on their ovro account,
and if they are industrious and intelligent, have immediate
use of their own for all their money and are not able to make
payments at short regular intervals. Consequently the con-
ditions essential to the success of a building and loan associa-
tion do not exist in the country. Farmers cannot afford to
tie up their money for a long term in the mortgages of
neighbors. The prime object of the reorganization of rural
finance in the United States is to create a system whereby
the farmers may utilize their savings as circulatory and work-
ing capital and obtain from the general public aU the other
funds needed for the equipment, improvement and acquisi-
tion of land. If farmers and their neighboTs were to invest
their disposable funds in real-estate mortgages, they would,
be subject to the necessity of borrowing all the more heavily
for raising and marketing their crops and live stock.

Building and loan associations deal in cooperative credit
only in a restricted sense, since they do not require members
to obligate themselves in any way for borrowers. They are
formed for collective saving — quite a different thing from co-
operative credit — and for investing the accumulated savings
by preference in mortgages of home-builders. Such an associa-
tion does not borrow nor does it pledge the collective liability
-of members for the latter purpose, which is essentially secon-
dary to its savings feature. The only state contemplating the
possibility is New York, which by its law as amended in 1914
allows members to impose unlimited liability on their associa-
tion in favor of the Land Bank in consideration of money or
bonds received. It is not probable that the investing and sav-
ing members of the New York associations will avail them-
selves of this right to subject any considerable portion of the

243 EUEAL CEEDITS

$65,000,000 of assets securing their savings to an unlimited
liability for raising money with which to grant new loans to
persons who may not yet be members. Associated persons
are careful when they have only their own savings to invest
and are inclined to become careless when they invest money
coming from the outside. Facile credit is thus cooperation's
greatest danger, because it creates corresponding liabilities
which must be met eventually, no matter how accommodating
the creditor may be or how remote the day. The soundness
and prosperity of the building and loan associations in the
United States are due to the fact that expenditures are re-
stricted statutorily to a small percentage of receipts, and offi-
cers are forbidden under penalty from involving an associa-
tion in any outside liabilities except a temporary one of a
limited amount to relieve stringencies. The New York laws
contained the same wise regulations until the amendment
authorized the directors to convert into cash the mortgages
taken to secure savings of members and to guarantee bonds of
the Land Bank.

The only cooperative association in which collective liabil-
ity is practicable for long-term real-estate credit is an associa-
tion composed entirely of borrowers. Such is the landschaft,
a distiactively rural association, and in every country in
which the landschaft has been introduced it has proved its
superiority for getting long-time loans for farmers at low
interest rates and on easy terms. Since the debentures of a
landschaft are unrecallable, the holders can never touch the
principal until the landschaft itself declares it to be due.
Until then the landschaft is obligated to repay only the semi-
annual interest on the debentures; consequently the issue of
debentures does not involve the landschaft in an outside lia-
bility, as is provided now by the New York law for savings
and loan associations. It would seem better to establish tried
institutions of this sort in the United States than to change
the building and loan associations, distinctively urban insti-
tutions, which, as they are now statutorily governed and con-
servatively managed in the cities and towns throughout the
country, afford the best examples of cooperative finance in the

PEINCIPLES OP LAND CREDIT 343:

•world. Moreover, it would be better to establish landschafts
than one large central land-credit bank or a plurality of such
banks. No private joint-stock banks in Europe have been
able to grant much long-time credit to farmers. Many of
them grant three- and five-year mortgages and a few grant
instalment mortgages of ten years, but they do not serve
farmers to as great an extent as trust companies, mortgage-
bond' companies and savings and state banks in the United
States. The laws of the states, however, shoidd be so amended
as to restrict bond issues and assure close ofiBcial supervision
for the purpose of giving more protection to the investing
public. A study of the origin and purpose of the creation of
the public or semi-public land-credit institutions, central or
local, which exist ia a few European countries, shows that
there are no exigencies calling for the establishment of such
institutions in the United States.

The landschafts may be either private or semi-public. The
latter are those in which ofiBcials appointed or approved by
the state are placed in the administration to serve as impar-
tial intermediaries between borrowers and bondholders. In
no case is a landschaft aided or guaranteed by the state, nor
does it require a monopoly, although it is well to give it a
restricted and exclusive territory. It usually is privileged,
however, to the extent of having special summary processes
against delinquents. Only persons desiring to obtain credit
on unencumbered farm lands may become members of a land-
schaft. Its object is to execute debentures on the collec-
tive liability of its members to be issued to them or in their
behalf in exchange for their notes and mortgages. A land-
schaft, therefore, has no need of a capital stock, savings or de-
posits, nor does it have to borrow. It is thus the safest kind
of financial institution which can be imagined, because it
handles no funds except those immediately placed in the best
kind of mortgages. The annuities collected from borrowers
are used every six months for paying interest on debentures
and expenses and maintaining a reserve, and for redeeming
debentures or making new loans.

The debentures of a landschaft, based as they are upon

344 EUEAL CEEDITS

the land and the collective liability of the borrowing farm-
ers, are almost as safe and sound as the land scrip which the
United States Government formerly issued. Debentures
would soon become popular in the United States if the in-
struments and the landschaft had the same tax exemptions
as a savings bank or a building and loan association; in that
case, naturally, they could be issued and sold at a low interest
rate and without fixed date for their maturity. This would
bring cheap money to farmers and in addition permit the
landschaft to grant reducible loans repayable by annuities
running for 30, 40, 50 or 75 year: or a period desired by the
borrower.

It has been asserted that American farmers do not want
long-time credit. The truth of this assertion can be ascer-
tained only after the facilities have been provided. Long-
term loans would enable tenants to become landowners by
paying their debts out of the annual produce of the soil. The
evils of tenancy have already made their appearance to an
alarming extent in the United States. Long-term loans
would enable farmers with love of home and pride of family
to acquire broad acres and build substantial residences at an
expense to be borne in part by their sons. The most patriotic
citizens in all countries are freeholders with firesides near to
ancestral graves. Long-term loans would enable the farmers
to convert into annuity contracts the $3,000,000,000 of three-
and five-year mortgages which now encumber their lands, and
thus save themselves from the costs of repeated renewals and
the dangers of foreclosure. If this stupendous amount, com-
posed in part of debts running back for many years, were
spread out over the future, the farmers would be able to em-
ploy more of their income to the present needs of agriculture.

PAET n. COOPEEATIVE CREDIT

CHAPTER XX

COOPBEATION AND COOPERATIVE CEEDIT

Definition. — Administration. — Objects. — Cooperative Society versus
Partnership and Corporation. — ^History of Corporations. — Eise of
Modem Cooperation. — English Trade Unions. — Beginnings in
Germany and Prance. — Work of Schulze-Delitzseh for Trades-
people and Workingmen. — ^Raiffeisen 's Activities for Agricultur-
ists.— ^Luigi Luzzatti. — ^Advantage of Cooperation for Farmers.
— Two Arrangements in Europe.

CooPERATioiT is the act of persons, voluntarily tinited, of
utilizing reciprocally their own forces, resources or both under
their mutual management to their common profit or loss.
The partnership, corporation or association may be used as
the form of organization for carrying on the business for
which they thus unite, but the latter form is the one most
frequently adopted.

The administration of the associational form of organiza-
tion difEers in details among different societies but never as
regards its important features. In all countries it comprises
a committee of control and a committee of management, both
elected by members, and supervising oflScials elected ia the
same way or appointed by outside authority; and these bodies
are separate and independent the one from the other and are
required to keep records and render reports of their opera-
tions so that their honesty and efficiency may be assured by
wise counterchecks and the light of publicity upon all their
acts. The power of the members is supreme but it may be
exercised only at meetings regularly assembled, at which a
majority prevails. A capital stock is not essential, but if it
exists it consists of subscriptions of persons enrolled as mem-
bers, belongs to them individually and not to the association,

247

248 EUEAL CKEDITS

and is subject to increase or diminishment by the admission
and retirement of members and by the payments and with-
drawals of payments on their subscriptions : hence the amount
of the stock and the number of members are not fixed but
constantly fluctuate above a certain prescribed minimimi.

The subscriptions are simple membership agreements con-
ferring certain rights always revocable by the association and
imposing certain obligations, among which may be that of
paying specified sums usually in periodical instalments. They
are not in any sense shares of stock, and while they may
determine the extent of the members' liabilities toward the
association and its creditors, they do not indicate their voting
strength. No matter how large the sum or sums for which
a member may have subscribed, the number of his votes is
so limited as to prevent the control, management or super-
vision of the association from being dominated by the mere
power of money. A cooperative society is an association of
individuals as distinguished from a combination of capital,
and the rights of members therein cannot be transferred nor
entrusted to proxies except by the society's grace, and then
only to other members; consequently, a member cannot hide
his identity or escape responsibility with the ease possible to
a shareholder in a corporation. A cooperative is legally and
morally bound by the acts of his society, while the liability
for its financial obligations which he assumes collectively
with his fellow members may involve severally as well as
jointly without limit his entire individual assets and credit.

A cooperative society may and in some circumstances must
of necessity deal with outsiders, but its benefits and advan-
tages are all confined to members. In this respect it differs
from a partnership or a corporation the associates in which
are beneficiaries of its economic action only as' they are a
part of its general clientage. Again, a partnership is com-
posed of a few designated persons who individually own its
assets much in the same way that cooperatives own those of
their society, but in each of whom its entire power and lia-
bility are lodged as regards third parties. A corporation has
assets and franchises owned and managed by the body itself

COQPEEATION AND COOPEEATIVB CEEDIT S49

as a legal entity apart from its shareholders. While these
shareholders, like members of a cooperative society, may vote
for officials, they vote by shares and not as individual persons,
and have no title ia the properties of the corporation, and
are not responsible for any of its acts. Thus in spirit, or-
ganization and administration there are vital points of dif-
ference between corporations, partnerships and cooperative
societies.

As regards objects, however, they are all alike. They may
engage in the same kinds of business, and when so engaged
they aim to make profits, effect economies, and further the
interests of the associates. The devotion of the cooperative
society to the interest of its associates, however, is the most
pronounced, since it imposes qualifications for participating
membership, grants this only when it may be of advantage to
itself and persons admitted, excludes the public wherever it
is possible to do so, and conducts its operations as on a com-
mon account for the mutual benefit of members alone. There
is nothing intrinsically altruistic or benevolent in cooperation.
The notion that it is based on charity to be mutually bestowed
and shared or to be spoon-fed by the government or philan-
thropists to feeble folk is a mistake of wide exposition. Coop-
eratives cannot give or receive alms without weakening their
fiber. They may or may not be inspired by brotherly love,
but the cement which holds them together is the desire or need
to gain or save. Cooperation is strictly business-like in its-
purposes and methods, and it has achieved its greatest and
most enduring successes among persons capable of relying
upon themselves and strong enough to refuse tenders of out-
side aid.

With the exception of bodies endowed by the government
with special and sometimes monopolistic privileges, the coop-
erative society, partnership and corporation are the only forms
of organization for business, if corporations public and pri-
vate, with or without stock, be considered as one class. Of
these three forms the cooperative society has proved to be
the best for consumers, for groups of small mercantile and
industrial producers, and for all farmers rich or poor. The

250 ETJEAL CREDITS

extensive powers lodged in the associates of a partnership
make this form of organization not only impracticable but
dangerous for the large number of persons who usually consti-
tute a cooperative society. A corporation may have a numer-
ous membership, but it is difficult to maintain the spirit of
mutuality within it, while, since its very organic existence
depends upon the possession of wealth, it is necessarily capi-
talistic and its tendency is to subordinate aU other objects to
the increase of its assets, and this is so whether its adminis-
tration be cooperative or otherwise. Moreover, a corporation
cannot combine workers or consumers without funds in hand
for united action in behalf of themselves as readily as an asso-
ciation can fulfill this object for respective members, because
their future gains and savings are an unknown quantity and
a value which cannot be computed in advance and used as a
basis for a fixed capital.

A cooperative society is free from these objections. Its
capital stock, if it has one, not being fixed like that of a cor-
poration, by its variability allows members to pay up their
shares as they cam or save the money and to withdraw the
money as they have other uses for it. This fiuctuation can
cause no trouble under normal conditions, because the only
need which a cooperative society has for money is for carry-
ing on the business of members, and the capital requirements
of this business grow correspondingly less as its proportions
become smaller with the retirement of members. So the
cooperative society is preeminently adapted for the classes
mentioned when they wish to utilize their own funds and
resources for their own purposes: but for farmers — it will
be seen later on — cooperation cannot develop its full useful-
ness without combination; there must be cooperation among
the cooperative societies as well as among their individual
members so as to create a system, and at the base of this
system should be the credit society.

The cooperative association is the oldest form of organiza-
tion for economic action. It has been so long in general use
that all European races have records showing that it preceded
their political organization. The earliest type was the group

COOPEKATION AND COOPEEATIVB CEEDIT 251

of kinsfolk or neighbors loosely bound together for their
common good or for helping one another in some enterprise
too big to be undertaken by individuals alone. The corpora-
tion, the other form of combiaation which permits of a union
of numbers, is of recent origin when compared with the coop-
erative society. It became possible only after circulating
wealth had accumulated and there were persons with sur-
pluses larger than their actual needs which they were willing
to entrust in ventures beyond their immediate control, and
after there had arisen a numerous class of consumers exist-
ing apart from the producers and able to buy what the latter
could supply.

The corporation, however, was the first to receive legal
recognition. At first corporations were not governed by gen-
eral laws but each was created by a special act, and they were
generally composed of persons of great influence with the
government, invested by royal decree with a monopoly or
privileges of an exclusive character obtained and used by the
grantees for some large project or grand enterprise. The
nobility were invariably represented among these grantees,
for in those days the nobility were all-powerful in the state
and owned most of the large fortunes by reason of their ex-
tensive landed estates, and from them alone could the desired
franchises and the needed capital be procured.

Thus the corporation started with aristocratic influence and
was generally intimately identified with the government, since
its noble shareholders had votes in the parliament or the
cabinet of the King. The Hudson's Bay Company which was
incorporated with Prince Eupert as the head and granted
vast stretches of territory and a trading monopoly in Canada,
the grant of Pennsylvania to William Penn, John Law's
Company of the West which acquired Louisiana, and the
enormous companies which were granted trading monopolies
by France and England over the South Seas and the East
Indies are typical examples of the mode in which big busi-
ness was launched in those days by corporations and . royal
favors. And when trade and commerce assumed tremendous
jjroportions in consequence of the development of modern

352 EUEAL CREDITS

transportation facilities which opened up new worlds for
exploitation, and when industrial and mercantile pursuits took
on their present importance and infinite variety as a result
of the discoveries and inventions of science, the corporation,
which yet remains the only private means for amassing capi-
tal, became the dominating factor in business life. The laws
which were enacted to give corporations a statutory form
were drafted also to encourage their growth, for the European
nations were struggling for supremacy and each realized the
very plain truth that no undertaking requiring large funds
to be used in distant lands or employed for indefinite periods
can be attempted except through the corporate form of or-
ganization, with a capital stock divided into shares of a size
suitable to the average run of investors and involving no
personal responsibility for the management or liability for its
debts.

The corporations throve and multiplied under this favor-
ing action of the governments. They found strong advocates
in the first school of political economists, whose studies re-
lated mainly to the accumulation of wealth, and their powers
were enlarged by lawyers and judges. The eloquence of
Daniel Webster in the Dartmouth College case, for example,
induced the Supreme Court of the United States to decide
that the grant of a franchise by the state to a corporation was
as inviolable as a contract between private individuals; in
other words, that while a nation may annul a treaty with
another nation, it cannot divest a citizen of privileges once
bestowed. With the rise and expansion of incorporated busi-
ness, household industries and handicrafts disappeared and
other momentous changes began to manifest themselves in
Europe. The landed estates the titles to which had descended
from the feudal system were being broken up ; personal prop-
erty was becoming as important as real estate and was yield-
ing larger fortunes; the nobles were giving way to the aris-
tocracy of wealth, and the barons of commerce and industry
were taking their place as the masters of the liberated serfs
who were swarming in the cities. Social and economic con-
ditions were undergoing an entire readjustment, and iucor-

COdPEEATION AND COOPEEATIVE CEEDIT 253

porated business was most powerful and active wherever the
rich were getting richer and the poor were getting poorer.

But reaction set in almost as soon as trouble manifested
itself, and this politically intrenched system, which consid-
ered only the accumulation of wealth and paid slight atten-
tion to the cruel inequalities of its distribution, soon became
a violently agitated subject of reform. A new school of po-
litical economists arose to advance the rights of man against
the rights of property, and various theories were broached or
put to practice with the object of rescuing the -poor from an
industrial slavery which threatened to be more oppressive than
that suffered under feudalism. Visionaries planned Utopias
elaborated on the form of the association of old pastoral days,
and their dreams materialized in communistic settlements
into which workmen might retire and sever all connection
with the outside world. Some of the communities located in
the wilds of America still exist. The more practical men
sought to reform society from within, to break up the inti-
mate relation between the government and vested private in-
terests, to abolish monopoly and special privilege, and then
to assure justice and equality either by giving freedom of
action under the law to all or by placing all business in the
hands of the government. Their ideas as to these alterations
were confused with a perplexing similarity at the start, but
eventually the line between them became clearly drawn aud
socialism sprang up on one side and modern cooperation on
the other.

A bitter antagonism arose between the protagonists of
these two theories when an active propaganda was launched
for their ideas about the middle of the last century. Today,
however, there are socialists who believe in cooperation and
cooperatives who believe in socialism. The reason for this is
that, industrially considered, both have an aim in common,
which is to give to the producer an equitable portion of the
wealth he creates. But socialism when it adopts cooperation
adopts it as one of many means to its end, while a coopera-
tive who is a socialist is such just as he may be, a German or
an American, a Christian or a Jew. Barring this identity in

354 EUEAL CEEDITS

respect to aim, the two forces are irreconcilably different the
one from the other. Socialism is political and often militant.
It stands for government ownership of all sources and dis-
tributing agencies of wealth and even, ia its most radical
form, for the abolition of private title to property; and it
strives to coerce everyone into joining its ranks whether he
would or no. But cooperation has no politics, at least outside
of the trade unions. It rests upon self-help, opposes state
intervention, and demands simple equality and freedom of
action under the law. It wants the adherence of no one but
him who is willing to join, and it insists inexorably upon the
individual ownership of property and the right of all to hold
absolutely as their own whatever they can honestly earn and
acquire. Hence, the harmony maintained at present must
dissolve in antagonism again when the campaign recently in-
augurated for cooperation reaches a more advanced stage and
its principles become better understood.

The advent of modern cooperation was with the English
trade unions, which were formed in the early part of the nine-
teenth century for increasing wages and supporting members
during strikes and lockouts. These trade unions, however,
were mutual benevolent organizations which strove to attain
their objects through the exercise of political power. They
were followed by a number of associations with a purely
economic purpose created within the next decade under the
leadership of Eobert Owen, the rich reformer who mixed
cooperation with free love and other radical ideas. The
first appearance of cooperative credit was in the United States,
with the foundation of the Oxford Provident Building Asso-
ciation at Frankford, a suburb of Philadelphia, on July 3,
1831. The first agricultural cooperative society in England
was that formed at Assington, in 1838, by 15 farmers who
put up $15 apiece, borrowed $3,000 more on their collective
liability from a man named Gordon, rented 75 acres of his
estate, allotted this land among themselves, and cultivated it
without hiring labor or paying salaries. In 1844 was founded
the Equitable Pioneers of Eochedale, with a capital of $140
contributed by 28 flannel weavers, mechanics and shoemakers

COOPEEATION AND COOPEEATIVE CEEDIT 255

for buying supplies to sell at wholesale prices to members.
At the time this society was being formed, Victor A. Huber
was propagating the idea of association for workmen and
tradespeople in Germany, but long before he grasped the
standard, tentative efforts toward cooperation had been made
among various classes in Germany and other countries on the
Continent.

In 1800 German tradespeople essayed the cooperative pur-
chase of raw material, and the establishment of cooperative
dyeing-houses and sale centers. In 1821 farmers in the
Rhine province collectively bought and operated a windmill
for grinding grain, and there seem to have been during that
period numerous mill associations on the Hunsruek, besides
communal bakeries in several districts along the Ehine. In
the sixteenth century there were drainage unions in Holland
and during the Middle Ages similar unions of the peasants
in Italy and Spain, while in Prance there were peasants' asso-
ciations for productive purposes in the thirteenth and twelfth
centuries. These instances are only a few of the many which
might be cited. Indeed, almost as far back as history can
be traced, associated action appears to have been a common
occurrence among farmers, tradespeople and small producers
in all European nations, and in Eussia, China and Japan;
for in the days when circulating money was scarce and the
mechanism of exchange had not yet been perfected, bartered
commodities frequently were gathered and disposed of col-
lectively in traffic, labor was exchanged for labor, and all this
sometimes led to cooperation in some form or other.

Thus, unlike the corporation system, the cooperative asso-
ciation arose amid humble surroundings away from the foster-
ing care of government and unaided by special privilege or
even by recognition in law. Its first essays were feeble and
sporadic. Nevertheless it had already made substantial prog-
ress when students, philanthropists and statesmen at last re-
alized that it could be developed into a great social and eco-
nomic force for protecting farmers and the plain people not
only against the oppressive aggression of capitalism but also
from the dangers of radical socialism. The movement in

256 EUEAL CEEDITS

"this direction on the European continent began in Germany
about the middle of the last century. At that time the Ger-
man Confederation was undergoing the disturbances attend-
ant on the change from the old to the new order of things.
The cities were crowded with workmen out of employment or
forced to accept whatever pittance was tendered them as a
daily wage. The small trading classes were succumbing in
"the unequal struggle with organized capital and large-scale
industry. The peasants, freedmen or serfs in many districts
were too ignorant and poverty-stricken to do good farming,
■while profits in agriculture had sunk nearly to the vanishing
•point because of the development of ocean steamship naviga-
tion which began regular service in 1838 and was now seri-
ously affecting the prices of grain and meat in the principal
markets by importations from the United States.

In the midst of these troublous times the poor were re-
duced to want and misery by a drought which lasted from
1846 to 1848. The rich distributed free bread, flour, pota-
ioes, seed and breeding cattle to relieve suffering in places
"where it was most intense, or opened public balieries, stores
and loan offices for selling these supplies to the needy cheaply
and on easy terms.

Two men, Herman Sehulze-Delitzsch and Frederick Wil-
liam Henry Eaiffeisen, both of whom subsequently attained
imdying fame, were foremost among the organizers of this
Telief work in Germany. Sehulze-Delitzsch was quick to
comprehend the limitations to the usefulness of charity, and
within a couple of years he inaugurated the movement which
he promoted to the end of his life for inducing tradespeople
and workmen to form associations for mutual self-help. He
was familiar with the history of cooperation, his investigations
of this subject having been inspired by the teachings of Hu-
ber, and before formulating his plans he made a close study
of existing associations, especially of those of industrial work-
ers for buying raw materials in France and the Eochedale and
other laborers' wholesale societies in England. Whether he
loiew of the Frankford building and loan association cannot
"be said certainly, but he probably did know of it, because he

COOPEEATION AND COOPBEATIVE CEEDIT 257

was a follower of Henry Charles Carey, the American econo-
mist, who lived in Philadelphia, had read all his works, and
most likely had corresponded with him.

The conclusion reached by Schulze-Delitzsch from his in-
vestigations and studies was that the first need of coopera-
tives was money and that consequently the basic unit of their
organization should be a credit society financed by their own
thrift or savings and by funds borrowed on their collective
liability. He believed that after they had familiarized them-
selves with simple banking methods and the uses of credit
and gained a standing in financial circles, they would be in a
position to apply cooperation to all other kinds of business.
Schulze, however, did not start the first society organized
along these lines. That honor belongs to Dr. Bernhardi and
a tailor named Buerman, who reduced the theory to practice
at Eilenburg, Germany, on October 1, 1850, while Schulze-
Delitzsch was still working on the details. Schulze-Delitzsch
did not make a practical application of his principles until
the summer of 1852, when he reorganized an association
which he had founded in 1850 at Delitzsch to conform with
that in Eilenburg. But this does not bedim the glory which
is his of having evolved in logical order the theory of this new
credit created out of the capitalized character of groups of
honest and industrious persons, which has proved to be as
sound a security as can be obtained regardless of how weak
the individual \mits may be. Schulze-Delitzsch's literary and
oratorical talents, which enabled him to expound the theory
in a clear and forceful manner, and his enthusiasm and effec-
tive activities for the cause soon made him the recognized
leader in the movement and brought him followers from all
sides. As time went on his ideas expanded and developed a
new science of economics which brought him into an open
conflict on the one side with the autocratic Bismarck and on
the other with the brilliant socialist Ferdinand Lassalle; for
to Schulze-Delitzsch mutual self-help meant cooperation based
on individualism and the inviolability of the right to private
property veithout assistance or interference by the government.
He denounced state aid as vehemently as he inveighed against

358 EUEAL CREDITS

charity, and also, while he maintained that cooperatives should
consider themselves as parts of the whole for their common
good, he urged that each should preserve his integral identity
and utilize the advantages of association first for his own
benefit and then for that of his fellow members. The success
of cooperation as propounded by Schulze-Delitzsch is due to
the fact that it does not violate human instincts nor raise to
a morbid degree of sentimentality the quality of brotherly
love.

The organization and business methods of Schulze-De-
litzsch's credit and savings societies, or rather people's banks,
are better adapted to mercantile and industrial classes with
small stores or establishments of their own than to workmen
or farmers. Indeed, he confined his activities largely to
tradespeople in urban centers and encouraged workmen to
join as members only when they wished to save or obtain
loans to become producers on their own account. Schulze-
Delitzsch never gave any particular attention to the agricul-
tural classes. The betterment of the farmers in Germany
was brought about by EaifEeisen. In the bleak and barren
district of the Westerwald in which Eaiffeisen worked out
the true principles of agricultural credit, the peasants were
reduced to such penury that during the famine of 1846 and
1847 their usual meal was sauerkraut and chicory brew, and,
as Henry W. Wolff says, this half-starved population, "iU-
clad, Hi-housed, ill-brought up, by hard labor eked out barely
enough to keep body and soul together with the support of
the scanty produce of their little patches of rye, of buckwheat
or potatoes and the milk and flesh of some half -famished cat-
tle, for the most part hopelessly pledged to the Jews."

In the beginning Eaiffeisen's sole object was to relieve the
distress of these miserable creatures and rescue them from
their usurious oppressors, and for this purpose he resorted to
the use of pure charity without any notion of cooperation.
His appeals for funds and assistance were liberally responded
to because as mayor of one of the towns and always an active
religious and social worker, he had a high ofiBcial and personal
standing in the district. But Eaiffeisen, like Schulze-De-

COOPEEATION AND COOPERATIVE CEEDIT 359

litzsch, also found that charity was producing no lasting bene-
ficial effect, and he transformed the benevolent associations
which he had organized with the aid of his rich friends into
loan ofiSees for according credit to peasants, finally admitting
these borrowers to full membership and responsibility, while
striving at the same time to retain the rich members in the
associations. This change, however, was not made until many
years after he had formed his first society at Flammersfeld, in
December, 1849. That the suggestion came from Schulze-
Delitzsch is shown by the following extract from a letter
written by Eaiffeisen on July 9, 1864, relative to the forma-
tion of a credit society to replace a charitable association
which he had established at Heddesdorf :

I was loath to give up the idea that cooperative societies
should be based on charity without thought of self or pelf. I
maintained my original idea in a letter to the weU-known
organizer, Mr. Schulze-Dehtzsch, an efficient worker in econ-
omies, but experience compels me frankly to admit that such
societies must consist only of the persons who personally need
their help and thus have an interest in keeping them going.

With the object of preventing a repetition of the unfortunate
experiences at Flammersfeld, I have resolved to allow the society
here at Heddesdorf to be dissolved, and then to organize another
society at an early date upon the new principles mentioned
above. Already I have made most satisfactory progress, prac-
tically upon the model of the Sehulze-Delitzsch associations.
However, since the latter are formed mainly for cities and
towns, I have made certain changes in the by-laws to adapt
them to local conditions. So far I have obtained the signatures
of about 300 reliable and industrious citizens of the district,
etc.

Eaiffeisen was not the sole originator of the type of
credit society which bears his name. The first society of
this kind was organized at Anhausen in 1862, probably by his
brother-in-law, the Eeverend W. Eenckhoff, and it was not
until April 25, 1869, that Eaiffeisen adopted all its features,
although he had assisted at the formation of the Anhausen
society. Thus 17 years intervened between the dates at which

260 EUEAL CEEDITS

Sehulze-Delitzsch and Eaiffeisen brought their respective ideas
to maturity. While the former was a national celebrity early
in life, the work of Eaiffeisen did not attain renown beyond
its local environment until he had reached middle age. In-
deed it did not achieve results of large proportions until after
his death, but the posthumous fame of Eaiffeisen now out-
shines the glory of his more successful rival, because coopera-
tive credit is spreading more rapidly among the agricultural
classes for whom he worked than among the tradespeople and
laboring men who were the peculiar care of Schulze-Delitzseh.

With the names of these two men must be coupled that of
Luigi Luzzatti of Italy, who originated in 1866 a modified
type of the Schulze-Delitzseh bank which now is more exten-
sively used than its model. The theories evolved by these
three men must be studied carefully in order to arrive at a
full understanding of the principles of cooperative credit, but
the fact must not be overlooked that these three types of socie-
ties exist only in their native countries, and not always in
their pristine purity even there, because laws subsequently
enacted in nearly every European coimtry, now require co-
operative societies to be formed and managed and their busi-
ness to be conducted according to statutory regulations. The
agricultural mutual banks of France also deserve to be studied
because they are a conspicuous example of state aid bestowed
as judiciously as governmental assistance can be bestowed and
the best example of the peculiar arrangement known as "syn-
dicalism." The associations in all other countries are adapta-
tions of these types. Most of them are mainly agricultural,
and wherever they are numerous and active they have been
formed into systems by grouping local associations under
regional associations and linking up the latter with central
institutions.

Indeed, cooperative credit for agricidture has never been
introduced in any country without keeping constantly in view
the aim of ultimately creating a system. Scattered agricul-
tural credit associations operating independently of one an-
other are foredoomed to failure or at least to an uncertain and
temporary existence. An agricultural cooperative credit asso-

COOPEEATION AND COOPEEATIVE CEEDIT 261

ciation which does not lead to the formation of other asso-
ciations in its locality will quickly disappear, and especially is
this true if lending and saving be its only facilities. Farmers
as a rule do not have any money to place at interest or to
allow to lie idle in banks because they can always find imme-
diate employment on their own farms for whatever money
they may make. Hence a cooperative association which
serves merely as a safe place for deposit and loans at current
interest rates offers no attractions to farmers, for they can
easily obtain that service elsewhere without assuming any of
the trouble and responsibility of the management or subject-
ing themselves to collective liability for defaults of borrow-
ing members.

The only difference which can exist between the interest
rates of a cooperative credit society and an ordinary bank
comes from the economies effected in the former by not pay-
ing large salaries or sharing profits with outside stockholders
or third parties. The compensation of a cooperative for
the use of his money or credit, like that of any other money
lender must be regulated strictly by market conditions. The
cooperative credit associations in Europe which do not demon-
strate this practical truth are those assisted by the state or
charity, and since their benefactors naturally demand par-
ticipation in the control or management to assure a proper
use of their aid, the spirit of mutuality and independence
is weakened by this outside interference. In the few coun-
tries where the associations depend on charity or state aid,
the members lack private initiative, are inclined to look upon
the donations and appropriations as gratuities not to be re-
paid even by thanks, and are in constant need of new bene-
factions to keep them together.

What then induces farmers to form a cooperative credit
society? The reason is that besides the reduction of interest
rates on loans resulting from the saving of expenses, it offers
other advantages of a more important character by acting as
the business head or financial center of all activities in the
neighborhood. It either makes collective purchases or sales
for members, as in the case of the Eaiffeisen credit societies.

262 EUKAL CREDITS

and thus enables them to obtain supplies at wholesale prices
and to dispose of their products without paying commissions
to middlemen; or else, as ia the case of French syndicalism,
the credit association or its members form other associations
connected with it for these purposes.

It is a disputed question in Europe as to which of these
arrangements is the better for farmers. The general belief,
however, is that at the beginning, when the credit associa-
tions are weak and few in number, they should combine the
purchasing of supplies and the distributing of products with
their banking business, and that after cooperation has become
firmly established in a locality, the credit association should
leave trading and industrial pursuits to other cooperative
associations specially organized therefor but so grouped
around and identified with it that it may attend to their
financial transactions. By the adherence of these associa-
tional members the importance of the credit society is in-
creased, and it is able to keep its funds in constant circula-
tion and to pay to depositors and to shareholders, if it has
any, the highest interest rates realized by money within the
area of its operations.

It is thus as necessary to study the systems of cooperation
in the various countries, with their federations and unions
which act as propagating and organizing bodies, as to study
the associations composing them. The central and regional
institutions are either joint-stock corporations or associa-
tions with variable capital, whose shares are held by the
associations next in rank under them, and whose affairs are
conducted by managers elected by these shareholders. The
majority of the local associations for credit as well as for in-
dustrial and mercantile purposes have a variable capital, but
many of the credit societies, — and these are the base of all, —
have no share capital but operate with deposits and loans at-
tracted and obtained by the collective liability, usually unlim-
ited, of members.

CHAPTEE XXI

THE SCHTILZE-DELITZSCH PEOPLE'S BANKS

Early Life of Schulze. — Founding of Associations for Working-
men. — ^Political Career. — ^Later Loan Associations. — Spread of
Movement. — Attitude of Prussian Government. — ^Death and
Eeputation of Schulze. — Henry CJharles Carey. — Claude-Frederic
Bastiat. — Scotch Banks and "Character" Credit. — ^Plan of
Sehuize People's Bank. — Operation and Organization of a
Bank. — Objection to Centralization.

Heemait Schulze was bom on August 29, 1808, at
Delitzsch, a small town in Prussian Saxony, whose name he
subsequently added to bis own. His ancestors had been
mayors and judges for generations, and he was the oldest of
ten children of a distinguished magistrate. He graduated
from the University of Leipsig, went through the law school
of the University at Halle, was admitted to the bar at 23
years of age, and after passing the competitive examinations
was placed on the eligible list for appointment to a position
in the judiciary department of the Prussian Government.
He was assigned to duty in the court of Naumburg and soon
afterwards in the chamber of justice at. Berlin. He quitted
Berlin in 1841 to take a similar post at Delitzsch, the easy
responsibilities of which enabled him to make a number of
trips to foreign lands, including France, the Tyrol, Italy,
Norway, Sweden, and, some say, England. His inclination
towards political life led him to study economics and the
science of government, and there is reason to believe that
during his travels he familiarized himself with the Fjench
artisans' associations for buying raw materials, the English
laborers' wholesale buying associations, and trade unions and
the Scotch methods of banking, because cooperation, currency

263

364 RTIEAL CEEDITS

reform and the diffusion of credit were at that period topics
of lively discussion throughout the Germanic Confederation.

Upon his return to his native town Schulze engaged in.
social uplift work. He organized an athletic and glee club,
of which he became president, and actively interested him-
self in the social and political life of hi^ community. In
the lean years of 1846 and 1857 he assembled a relief com-
mittee, collected funds and rented a mill for buying and
grinding flour and a bakery for making and distributing
bread to the destitute free or at a low price. After the
famine he formed an insurance society for the poor against
sickness and death, and during the next few years various
other societies were formed in rapid succession, by his direct
assistance or as a result of his teachings, which included a
traders' bank at Elbing in 1848; an association for buying
raw materials for carpenters and shoemakers at Delitzsch in
1849; a loan office at Cuestrin in 1849 and another at
Delitzsch in 1850; a food-supply association and a credit
society at Eilenburg in 1850; a food-supply association at
Delitzsch; an association for buying leather for shoemakers
at Bitterf eld, and an association for buying cloth for tailors
at Delitzsch in 1853.

Schulze was elected a deputy from Delitzsch to the Na-
tional Assembly at Berlin in 1848, and thereupon changed his
name to Schulze-Delitzsch to distinguish himself from his
many relatives and another Schulze in the legislature.
Schulze-Delitzsch was a progressive in politics. He partici-
pated in the debates and boldly opposed the attempts of the
Government to establish a military dynasty and intervene in
all human affairs. He was appointed chairman of the legis-
lative committee formed to investigate the labor question
and his recommendations did not meet with the approval of
the Government. He also voted against increasing the war
taxes and was indicted on this account for treason in 1849
along .with the majority of the Assembly. Schulze-Delitzsch
conducted the defense. All the defendants were acquitted
by a jury in Berlin, whose verdict was inspired not only by
the rights of the case but by the indignation aroused by the

THE SCHULZE-DELITZSCH PEOPLE'S BANKS 365

invasion of the Assembly by an armed force xmder orders
irom tbe Minister of War. Sehulze-Delitzscb's victory made
Mm a popular hero but it inflamed ' the animosity of the
Government, which had looked upon him with suspicion and
distrust ever since he began to organize associations for poor
■workmen and tradespeople.

A reorganization of the judiciary gave the Government
an opportunity to satisfy its grudge against Schulze-Delitzsch
by relegating him to Wreschen, a small Polish village in the
Duchy of Posen on the Russian frontier. He was assigned
"to this post practically as an exile, but he applied himself
"with assiduity to the discharge of his duties, and added to his
iame by settling satisfactorily an important and difficult land-
credit ease. His request for a furlough to recuperate his
health and attend to his personal affairs at home was denied.
He left Wreschen, nevertheless, and when the Government
■docked his salary and was preparing to show its displeasure
^at his unauthorized absence in a more emphatic manner, he
"tendered his resignation from the judiciary service and in
1851 returned to Delitzsch to live.

Schulze-Delitzsch found that during his exile his associa-
"tions had been neglected and that the society for loans at
Delitzsch was doing nothing. With the exception of the
Eilenburg association all the associations were charitable, and
although they received deposits and borrowed on the collective
liability of members, they were managed and financed entirely
"by the rich and weU-to-do members. The EUenburg associa-
■fcion, however, was a pure cooperative credit society based on
self-help and managed by the borrowing members. It began
with 180 members and in 1853 had 586 members to whom it
had made 717 loans averaging 300 thalers ($142) each. A
few years later, however, it disbanded because of a misun-
derstanding between Dr. Bernhardi and the tailor Buerman
who, as stated in the preceding chapter, were its founders.

The loan association of Schulze-Delitzsch, at Delitzsch, was
composed of members of his athletic and glee club, and it
was organized in 1850 as the direct consequence of a refusal
of the savings bank in that town to extend financial help

266 EUEAL CKEDITS

to the various associations which had been organized in
that locality. The first step which Schulze-Delitzsch took
upon his return from Wreschen to put the association on its
feet was to request the municipal authorities to advance it
200 thalers for working funds. This request was refused,
although Schulze-Delitzsch offered to let them designate two
judges and one alderman, one of them to be chairman of
the board of directors, to serve as a committee with one vote
in the administration of the association. Schulze-Delitzsch
thereupon resolved to reorganize the Delitzsch association
and base it entirely upon the principle of self-help which had
proved so successful in the Eilenburg society, and this was
done in the summer of 1852. The membership immediately
rose from 30 to 150 and the society was soon able to obtain
all the money sufficient for its needs at five per cent. Schulze-
Delitzsch never again asked for public aid or charity; his
early appeals he ever remembered with regret, and he excused
them by referring to the overwhelming emergencies of the
times.

Gradually the two credit associations at EUenburg and
Delitzsch were followed by others in the province of Posen
and the kingdom of Saxony. The next was formed in 1853
at Zoerbig near Delitzsch, and others were formed ia 1854
at Eisleben and Peine, and in 1855 in Cella, Meissen, Bitter-
feld and Sangenhausen. By 1859 there was in existence 183
people's banks with 18,676 members, and it was decided to
hold a convention to discuss ways and means of giving a
proper direction to the movement and extending it through-
out the country. Schulze-Delitzsch planned to hold the con-
vention at Dresden, but this was forbidden by the King of
Saxony who suspected some political purpose arising from the
widespread discontent which then prevailed among tradespeo-
ple and workmen, and the convention was transferred to
Weimar. Twenty-nine associations were represented by 38
delegates. A permanent organization was formed which sub-
sequently became known as the General Federation. Schulze-
Delitzsch was elected president, and was voted a salary to
consist of two per cent of the net profits of all the associations.

THE SCHULZE-DBLITZSCH PEOPLE'S BANKS 267

s

on the understanding that he should engage in no other busi-
ness and should devote all his time and ability to the Federa-
tion. He accepted this position with the title of "salaried
agent and counselor of the mutual cooperative associations of
Germany," and from 1860 until his death he devoted himself
exclusively to its duties.

About this time Schulze-Delitzseh was elected to the
Chamber of Deputies again and thenceforth became one of
the most conspicuous figures in public life, always fighting
for cooperation and the rights of the plain people. On the
one hand, he continued to denounce the militarist tendency
of the Government, and his opposition was so formidable that
King William I of Prussia is alleged to have said, "We shall
see in the end which of the two shall triumph, Mr. Schulze
or myself." On the other hand, Sehulze-Delitzsch was the
foe most hated and feared by the socialists. Lassalle made
him and his doctrines the principal objects of attack. After
the untimely death of this brilliant theorist in 1864, the
gage of battle was taken up by other violent protagonists, but
they were unable to check the continuous increase in the num-
ber of Schulze-Delitzsch's societies and followers. In the face
of Bismarck's opposition Schulze-Delitzseh had practically
made a political party for himself through his talents for
writing, speaking and organizing. In 1864 admirers pre-
sented him with about $37,500 raised by public subscription.
He accepted this gift on the condition that after his death
the revenues of the fund should be used to help worthy men
engaged in social welfare work. The refusal of the French
authorities to allow an international congress on cooperation
to be held at the Universal Exposition at Paris in 1867 added
to the strength of the movement he had inaugurated on the
Continent, and he was idealized at home and abroad as the
greatest advocate of democracy and friend of the lower classes
in Europe.

By 1861 there were in the German Confederation 364
people's banks with 48,760 members, besides many cooperative
societies for other purposes than credit. They were operating
practically outside of the law since no legislation relating to

268 EUEAL CEEDITS

cooperation had yet been enacted. They frequently met with
interference by the public authorities, who claimed the right
to approve their articles of agreement or by-laws and to forbid
operations without such approval. At the annual convention
in 1861 it was resolved to secure proper legislation. Schulze-
Delitzsch drafted a bill for this purpose in 1862 which be-
came the cooperative law of Prussia in 1867 and of various
other German states in 1871 and 1873. For this the Univer-
sity of Heidelberg conferred upon him the degree of doctor
of laws, because he "was the man who created for associa-
tions the right form and new laws, and thereby improved and
enlarged the science of jurisprudence." But he did not live
long enough to witness the completion of his legislative work
with the enactment of the German law of May 1, 1889, which
still remains in force with a slight amendment made in 1896.
Schulze-Delitzseh died at Potsdam on April 29, 1883. In
that year there were no less than 1,910 Schulze-Delitzseh
societies with 466,575 members in Germany, and hundreds
of others of a pure or modified form of his type in other
European countries. In 1891 his statue in bronze, the cost
of which was paid by international subscription, was erected
in the central square of his native village, and a few years
later a monument costing more than $70,000 was raised to
his memory in Berlin. But long before his death his leader-
ship had been disputed and the cooperative movement in
Germany divided into warring factions. His writings, begin-
ning with his first book in 1853, however, were read by all
as text books, and were the most efEective literature for
spreading information on the -theory and practice of co-
operation on the European continent during the latter part
of the nineteenth century. The authors who directed the
trend of Schulze-Delitzsch's thoughts on politics and econom-
ics were the American Henry Charles Carey, and the French-
man Claude-Frederic Bastiat, who was himself a follower of
Carey. Indeed Schulze-Delitzseh was called by Lassalle the
Bastiat of Germany, while by Benjamin Eampal, the French
philanthropist who willed a large fortune to the poor, he was
looked upon as Carey's chief disciple.

THE SCHULZB-DELITZSCH PEOPLE'S BANKS 269

- Carey, the son of an Irish bookseller, lived in Philadel-
phia from his birth in 1793 to his death in 1879. In
America he is known as the first protectionist. In Europe
he is famed as one of the first political economists who con-
sidered that the rights of man are more important than
the rights of property. Carey believed that every individual
was entitled to a fair share of the wealth accumulated in
society according to his capacity to acquire it. He attributed
the concentration of wealth under the control of those who
did not create it to an unnecessary multiplicity of inter-
mediaries or middlemen, and to eliminate them he advocated
associations among producers and consumers so as to retain
the control of trade and commerce withia their own hands.

Bastiat was born at Mugron, in the canton of Landes, in
1801, and died at Eome in 1850. He was one of the most
famous of the French political economists of his day. He
pointed out that in isolation a man's needs are greater than
his power to supply them, while in combined action with
associates they are considerably less. Hence, wealth tends
to increase in a social state, and its increase enables each
succeeding generation to raise a more numerous progeny.
Division of labor and exchange necessarily arise out of this
continuous increase of wealth and population. Bastiat did
not object to this condition. He wished to readjust society
so as to reconcile the interests of the different classes in it,
and to prevent one man's profit from being another man's
loss. He believed in private property and denounced those
among the socialists who wished to turn it over to the govern-
ment, and the levelers who wished to redistribute it share
and share alike among the people. He declared that prop-
erty was the fruit of labor and its stability the greatest in-
ducement to labor. He felt that every individual would ac-
quire his just share if he had the right and opportunity to
work. Malthus' fear of excessive population did not alarm
Bastiat. In his opinion the means of subsistence were prac-
tically inexhaustible, and the increasing numbers of people,
if their efforts could be combined, would make supplies plenti-
ful, cheapen the cost of living, do away with the harsh neces-

270 EUEAL CEEDITS

sity of contimial work, and afford leisure for recreation and
for social and intelleeftial improvement.

The salary or wage appeared to Bastiat the best way to
judge the worth of laborers. He encouraged them neverthe-
less to form societies for savings and for mutual assistance in
ease of sickness or want, and finally he came out unreservedly
in favor of progressive association, that is, the gradual bring-
ing together of capital, labor and talent for the good of hu-
manity. The sole condition he imposed was that associations
of this nature should be voluntary and that their expenses
should not be borne by those who refused to enter them. Had
Bastiat not died at a comparatively early age, he would prob-
ably have been a great writer on cooperation, for in his last
book he asserted that society is nothing more than association,
and that the failure of its parts to act in harmony "clearly
shows that it is still in its infancy."

According to Mr. A. de Malarc, who visited Schulze-
Delitzsch in an official capacity in 1868 and published an
account of his interview in a report submitted to the French
Chamber of Deputies in 1894 in which he asserts, "herein
it is Schulze-Delitzsch who speaks through my voice," the
great German cooperative drew his ideas regarding the dif-
fusion of popular credit from the banks of Scotland and
adopted for his people's banks their methods of extending
credit, particularly those of cash credits and the use of the
indorsement of neighbors instead of mortgage or collateral
as security for short-time loans.

The Scotch banks almost from their beginning have ex-
tended their services to small customers. In 1695 the Bank of
Scotland was chartered with a monopoly and unlimited powers
of issue as to both amount and denominations. This monopoly
was taken away when the Eoyal Bank was incorporated in
1727. Trade and commerce proved to be too light to keep the
resources and notes of both these banks in circulation, and in
1729 the Royal Bank began to send agents around the coun-
try. They visited the fairs and the villages on market days.
They taught the shopkeeper and the crofter that the use of
money and the backing of the bank could be bought at an

THE SCHULZE-DELITZSCH PEOPLE'S BANKS 271

agreed price as any other commodity. They also taught the
young men how their reputations for honesty and industry,
if known to neighbors, could be capitalized for an amount
sufficient to set them up in business.

If the agents found a worthy man who needed a little
money for some economy or productive purpose, they would
give him a dravring account at the bank up to a specified
amount upon the indorsement of a couple of friends, with
the understanding that he would deposit his savings or gains
with the bank. The agents came promptly at appointed times
to coUect these sums, and interest was allowed and charged
on the daUy balances. Thus the bank kept watch over the
use of the money that was drawn and closed the account
if it became inactive or threatened a loss. Hence there was
every reason for a person, when once he had entered into rela-
tions with the bank, to be industrious and accumulate as
large a balance in his favor as possible. This practice is
called Scotch or cash credit, and the manner in which it is
diffused through agents and local branches in Scotland has
brought banking to the very doors of the people, implanted
a spirit of thrift, honesty and enterprise in them, and enables
them by close connections with the banks to obtain expert
advice as well as financial assistance in the conduct of their
affairs.

The credit accorded in Scotland on the good faith of
the borrower and his reputation for industry, sobriety
and thrift, when guaranteed by two or three friends,
Schulze-Delitzsch designated as "character" credit. Since no
person or institution in his locality ordinarily would take such
a risk, the only alternative was the usurers. He- knew, how-
ever, that the average man is honest and able to pay debts
incurred for his own business purposes if given a reasonable
chance, and finally he hit upon the plan of having the bor-
rowers assume their own risks, of combining them in groups
to make the individual risk as light as possible, and then of
diffusing this form of credit by inducing the trading and
working classes to form little banks, organized and managed
like the cooperative associations then existing in England, for

273 KUEAL CEEDITS

collecting and investing their own savings and for raising
money from outside sources for members in case of need on
their joint and several liability. His plan as outlined by
himself for his first bank in 1850 was as follows:

Individually you find difficulty in obtaining the necessary
money to buy the raw materials which you require in your
"work. So then organize an association by a regular contract
of agreement upon the collective liability of such of you whose
habits of industry and correct living are known in the neigh-
horhood.

Do not forget that your object should be to borrow to
produce, that is, to give a plus value to the money you have
borrowed so that you may be able to pay it back with interest
and some profit. But never borrow for consumption, as is
frequently the ease with wage-earners who render themselves
liable to default. Let your union be strictly a credit associa-
tion among producers, and small producers if possible.

Then you should gradually form a capital stock or guarantee
fund to be composed of payments on shares of $30 or less and
entrance fees. Each member should pay his dues monthly and
thus little by little pay up the amount of his share. After the
venture has proved successful you might increase the fund by
adding to it a part of the profits of the association.

Each of you should deposit his savings with the association,
which should pay interest on them, but naturally somewhat
lower than the interest on loans. These deposits wiU form at
the same time an additional guaranty fimd and a working
capital. Tour association will then be a savings bank, but one
that will be managed by the depositors through officers of their
own selection.

If your association should need more money, you should go
to some lender and offer to him your joint and several liability
as security therefor. Each member should be responsible to
the full extent of his individual property and resources for all
operations. "All for one and each for all" shoidd be your
motto. This unlimited liability appears to me indispensable
at the beginning, in order to put all on guard in an association
composed of persons not yet accustomed to forethought and
financial matters. It will oblige each to watch his associates as
well as himself. Later on, when you have become better trained

THE SCHULZE-DELITZSCH PEOPLE'S BANKS 273

and acquainted with each other, and lenders appreciate your
credit value, you might limit this responsibility. But for the
present it should be unlimited.

Tour association should be based on personal credit. A.
cooperative association of small producers which can obtain
credit only upon real estate, or by pledging collateral, chattels,,
implements or live stock, does not deserve credit. It would be
dangerous to extend credit to it. Tour own selves and char-
acters must create your credit, and your collective liability
win require you to choose your associates carefully, and to
insist that they maintain regular, sober and industrious habits,
making them worthy of credit.

This is a reason why you should not resort to public or
charitable sources for loans. This is also why no official of a
government savings bank, or manager of a foundation formed
by donations of the state, province or coromune, or grand lords
or rich persons, should be connected with your association.
Such people are inclined or prompted to extend credit because
of patronage or politics, and on considerations quite different
from your real worth as producers.

Away with the complaisant and charitable lender. Away
with the loan which has the appearance of a gift, and which
does not obligate the borrower to the acknowledgment of his
debt and bind him to its prompt and positive repayment. For
any loans you may need, address yourselves to a banker, who
will treat you as any other applicant, a banker who selects his
customers without any view of charity or politics, and to
protect himself against possible loss assures himself that the
borrower is clever, capable, orderly and good for the repayment
of the loan.

Moreover, have nothing to do with the man who would pro-
cure you easy credit, a credit more easy than that open to other
producers. That man would ofier to you a deadly gift. Easy
credit is often the cause of ruin, especially to the small producer
who has not yet habits of order and forethought, and who lives
from day to day without keeping an exact account of his affairs,
and knows nothing about the cost of production or its returns.

What you need is fair credit on terms equal to those accorded
to any other good industrial enterprise. Go to a banker who
does not depend on public or charitable funds but who risks
his own fortune in his business. Everybody knows that there
is no lack of money during ordinary times at the local banks.

274 EUEAL CEEDITS

What they most need is good borrowers. Any one of them will
supply you with money, and it will do more than that. It will
help you to rise from the class of workers without credit to the
class of workers with credit; and you will improve your well-
being every degree that you rise in the economic scale of
producers.

Without doubt it will take you longer to reach your aim
through yourselves and cooperative association than it would
by resorting to government banks and charity. Yes, certainly
it takes longer to build credit up from the bottom than to let
it come down from on high; and it does not please small
producers to say to them: "Only by well regulated lives and
by proper rules of conduct imposed upon yourselves, shall you
obtain credit." Nevertheless, this credit, which you do not
obtain from another as a bounty or alms, is in reality the
credit which you create by elevating yourselves. Eesults may
be slower, but they will be more sure, deep and lasting.

Your association, having thus opened the sources of credit,
will grant individual loans to members out of its disposable
funds. The executive committee elected from the members at
the annual meeting of the shareholders, may be authorized to
lend to any member a sum double the amount of the value of
his own property, and even more, if guaranteed by the indorse-
ment of two members. The loans should be granted for three
months ordinarily, and for six, nine and twelve months or
more, in cases where the committee shall deem it wise to pro-
long the time. It may also refuse loans to a member who can-
not give sufficient security, defaults payments, or gets into
legal troubles.

Very few changes have been made in this original plan.
Schulze-Delitzsch worked among laborers and tradespeople
in the villages and cities, and today the people's banks are
mostly urban, although many have a large agricultural busi-
ness and membership. But whether in town or country they
spurn the thought of state aid and charity, public or private,
and depend upon the industry and economy of members to
raise the funds they need. While serving mainly the middle
classes and sometimes poor people, they have no use for
idlers, profligates or incapable persons. They are not re-
formatory houses or benevolent institutions. They admit

THE SCHULZE-DELITZSCH PEOPLE'S BANKS 275

only those who have orderly habits, good reputations and suf-
ficient cash in hand to prove that they are worthy applicants.
All members must hold themselves equally liable for any obli-
gations iacurred by their bank. Unlimited liability is still
recommended for a small society at the beginning, but this
■was never an essential point. Schulze-Delitzseh and his
immediate successor warmly advocated it, but the national
convention of his societies in Germany in 1894 passed a reso-
lution favorable to limited liability, and in 1896 declared that
no distinction should henceforth be made in the matter.

The objects of a people's bank are to encourage saving
among members and to extend or find credit for them. As a
first step towards accomplishing these objects Schulze-
Delitzseh provided that each member should subscribe for a
share. The average value of shares for an unlimited-
liability bank is $75, and for a limited-liability bank,
$125. The member may pay it up in lump or by
instalments as low as 12 or 25 cents a week. In
addition he must pay an entrance fee. Schultze-Delitzsch
set this at $2.60, but in well established societies it is often
three or four times this amount, so as to equalize the rights
and obligations of the old and new members. It may be
paid by monthly payments, but can never be withdrawn by
the member as it becomes the property of the bank until
dissolution.

The amounts paid on the shares belong to the members
and may be withdrawn upon retirement, usually on three
months' notice. They form the capital of the bank, which
increases and decreases with the number of members and their
payments and withdrawals. By reason of this the capital of
a people's bank differs entirely from the capital of a cor-
poration, which is fixed by its charter and when once paid in
by the shareholders becomes its exclusive property. Schulze-
Delitzseh believed in a large capital, since it gave the bank a
standing in financial circles and also indicated that it was
composed of thrifty and industrious members. Consequently
he prescribed no territorial limits, but allowed the banks to
operate through agents and branches and as far away from

276 ETJEAL CEEDITS

headquarters as conveniently practicable. He urged them
also to gather members from various trades, with the idea
that their savings and earnings coming in at different times
would steady the inflow of capital. He wished each bank to
be the chief savings and loan institution in its locality, and
many of them have become such. The only limit he placed
as to size was that the capital of a bank should be one-tenth
of the amount of its outstanding obligations at the start, one-
fourth at the end of the second or third year of its existence,
and finally one-half. But he restricted the holdings of each
member to one share, so as to prevent the bank from falling
into the hands of rich people.

Besides giving the bank a financial standing, the capital
acts as a guaranty fund to protect members from their per-
sonal liability. The reserve is created to meet any losses
which cannot be paid out of the earnings. Its source, in
addition to all entrance fees, is a certain portion of the profits
sufficient to maintain it always at least up to ten per cent of
the capital. In a new bank one-fifth of the profits may be
used for this purpose; in an old institution five or ten per
cent will suffice, and the balance of profits may then be dis-
tributed as dividends. The method of distribution varies. In
most banks it does not begin until the member has paid up a
certain part of his share. Profits are then credited on it,
but not till it has been fully paid does it draw dividends in
cash. Schulze-Delitzsch believed in large dividends in order
to encourage thrift and attract capital. Six and seven per
cent are not unusual now.

Large dividends are objectionable and dangerous from the
cooperative point of view. They come mostly from the bor-
rowing members and add to their burdens, thus creating a
conflict of interests within the bank. Hence many writers
contend that they should not exceed the rate at which money
may be procured in the open market. Unless some such re-
striction is imposed it is difficult for a people's bank to main-
tain its true character. Por a cooperative association money
is easy to get, especially when it is large and offers attractive
profits. But when once the ambition for large dividends

THE SCHULZE-DELITZSCH PEOPLE'S BANKS 277

arises, the members who join for gain predominate over those
who join for obtaining credit and the bank is led to place its
funds in outside investments. This is particularly the case
■with a few large concerns of the limited-liability type, which
have become veritable capitalistic banks and use their funds
in ventures with which their members have no connection.

But as a general rule the people's banks remaia faithful
to their members. Moreover, the organization and manage-
ment are so arranged that cooperative methods and equitable
treatment for all is practically assured. The administration
of each bank is entrusted to an executive committee and a
board of supervision elected at the annual meeting of the
general assembly. The general assembly is composed of the
sh|treholders of the bank, each of whom has but one vote
which cannot be balloted by proxy. The assembly meets an-
nually to elect officers, quarterly to review the affairs of the
bank, and on special occasions when called by the executive
committee or one-tenth of the members. The majority pre-
vails, except in important cases like changing the by-laws
or value of shares, removal of officers, or dissolution, when
three-fourths of the votes of at least one-third of the members
are required. A person who belongs to an unlimited-liability
bank cannot be a member of any other bank.

The executive committee is composed of the manager,
cashier and comptroller. They must be members and cannot
be elected for a longer term than three years. They transact
the actual business of the bank. No business may be done
outside of office hours or without the concurrence of at
least two of the committee. For compensation they receive
annual salaries and a percentage of the profits.

The board of supervision usually consists of nine or more
members, one-third of whom are retired each year. They
select a chairman and may act only by a majority vote. No
supervisor may take part in any proceeding in which he is per-
sonally interested. The board meets once a week. It receives
weekly, monthly and quarterly statements from the execu-
tive committee and supervises its official conduct. The board
and the committee act jointly in granting credit, handling

278 EUEAL CEEDITS

the funds, borrowing money for the bank, suspending em-
ployees, admitting and expelling members, auditing accounts
and preparing reports for the general assembly, and m all
other matters of prime importance. The board may tem-
porarily suspend the ezecutive committee or any part of it,
and take entire charge of affairs imtil the general assembly
is called to decide upon the case. The supervisors are com-
pensated by fees paid for the meetings they attend.

By such an administration, elected for a short period and
subject to dismissal upon the vote of a small minority, the
members may exercise absolute control over the bank, and
compel it to be properly managed for their exclusive benefit.
A Schulze-Delitzsch or people's bank does strictly a banking
business, receiving deposits, extending credit, buying and
selling securities on commission for members, and sometimes
making collections for them. It can own no real estate
except for its ofiice building, and must strive to avoid invest-
ments and transactions of a speculative or hazardous nature.
The funds for its business are its capital, reserves, sight and
time deposits of members and outsiders, and money borrowed
in case of need on the collective liability of its members. It
uses these funds without regard to origin in its various opera-
tions, although it endeavors to keep its reserves in easily nego-
tiable securities.

The credit facilities of a bank are for its members only,
and small are preferred to large loans, lio member of the
executive committee may receive credit. Supervisors may
receive credit if approved by a committee specially appointed
to consider the matter. Outside investments are made only
to prevent funds from lying idle or to place reserves in safe
securities. But although the bank is run for the benefit of
members, they cannot make use of its services unless they
prove themselves worthy of them. In the large societies the
executive committee, with the assistance of the board of
supervision, prepares a list, register, or card catalogue on
which are recorded opposite the names of the members all
facts bearing on their solvency and the maximum of credit
that may be accorded to each. The latter figure increases

THE SCHIJLZB-DELITZSCH PEOPLE'S BANKS 379

with the payments made on the shares, but this is not defin-
itive. Each ease depends on its individual merits and secur-
ity is required. Eeal-estate mortgages and members' shares
are rarely taken and some banks do not aUow them at all.
Chattel mortgages, pledges of not easily perishable personal
property, warehouse receipts, biUs of lading, collateral and
bankable paper are frequent, but the most customary and
desirable security is the indorsement of two or more friends,
usually fellow members.

The people's bank gives all kinds of credit. They make
loans on an I. 0. U. or promissory note and discount book
debts and bills of exchange. But the two methods which
seem to be preferred are accepting bills of exchange and
graptiug advances on current accounts, or cash credit. In
the former of these two methods, a member draws a biU on
his bank iu favor of his creditor. The bank writes its accept-
ance for a small fee across the face of the biU. The creditor
indorses and sells it at some other bank or otherwise disposes
of it in the course of his business. By thus using its name
and financial standing the accepting bank can accommodate
members without passing over a cent of its funds, while mem-
bers may make use of their credit as actual money. Cash
credit is practised ia the same way as in Scotland, but the
current account on which the cash payments are debited and
credited is closed every six months. The time on all other
forms of credit is generally three months. Punctuality is
rigorously exacted, but renewals are allowed wherever equity
or necessity demand them.

Schulze-Delitzsch opposed centralization and so no sys-
tem has been created out of his banks. The "Federation of
Industrial and Economical Cooperative Societies based on the
Principle of Self-help," or General Federation, which was
proposed at his first convention in 1859 and assumed definite
shape in 1864, does not prevent independent action, nor does
it interfere in the internal affairs of the societies. Schulze-
DeHtzsch believed, however, that the banks should unite by
provinces in Prussia and by states or groups of small states
in the rest of Germany, and all are now grouped together

280 EUEAL CREDITS

in this fashion under the Federation. Three of these groups
founded provincial banks, and Schulze-Delitzseh helped to
start a central bank at Berlin, but only a minority of the
banks joined. In 1868 he organized a Bureau of Exchange
to facilitate financial relations between the societies. This
stiU exists, and with the assistance of the Dresdner Bank,
which has established a special department for the credit
societies, takes care of whatever transactions they carry on
among themselves.

CHAPTEE XXII

THE EAIFPEISEN SYSTEM

Life and Character of EaifPeisen. — Early Work for Cooperation. —
Change from Charity to Self-help.— Growth of Societies. — Dif-
ferences from Sehulze-Delitzsch System. — Central Agricultural
Land Bank. — General Federation of the Eural Cooperative So-
cieties.— ^Reasons for Success of His Principles. — Agricultural
Cooperation and Combination His Contribution.

Frederick William Henry Eaiffeisen was born on
March 30, 1810, at Hamm in the Ehine Province, Germany.
In his ancestry, traced back to 1569, there were many teach-
ers, ministers and burgomasters. His mother was a devout
Christian woman of strong character. His father, once a
clergyman and mayor of this little village, was addicted to
drink, became demented from alcoholic excesses and died in
1821, leaving his widow and children in poor circumstances.
Young Eaiffeisen was inclined to religion from childhood and
was confirmed in the Evangelical or Lutheran faith in 1832.
Poverty prevented his going to college but the pastor of his
church, attracted by his studious habits, instructed him for
several years after he left the village school and gave him a
good education in the rudiments of learning.

At the age of seventeen he joined the army. In 1835 he
was a volunteer in an artillery brigade stationed at the for-
tress of Cologne, whence he was sent in 1838 to the army
school at Coblenz, where he stayed two years, studying
mathematics, physics, chemistry, and other subjects. After
passing the examinations, he was made a master artificer in
1840, and was detailed the following year to the royal foundry
of the Sayn where the Government cast cannon. Shortly
afterward he was afflicted with a disease of the eyes which

281

282 ETJEAL CREDITS

threatened blindness and had to quit the army and give up his
hopes of becoming a commissioned officer.

Eaiffeisen then entered the civil service and obtained a
clerkship under the municipal government of Coblenz, through
the influence of an uncle who was a prominent lawyer.
In 1843 he was appointed secretary of the congressional
district of Mayen, in which office he displayed such marked
administrative abilities and attention to duties that he
was elected in 1846 the burgomaster or mayor of Weyer-
busch, to which Flammersfeld with its 33 villages was added
in 1848. His first marriage occurred in 1849, and of this
union were born seven children, two of whom became well
known, his son Eudolf, who succeeded him as the head of his
cooperative system, and his daughter, Amelia, who acted as
his faithfid amanuensis and assistant manager of his affairs,
public and private, during the years of his partial blindness
until his death.

In 1852 Eaiffeisen was elected mayor of Heddesdorf, one
of the boroughs of the city of Neuwied. After this date his
eight failed rapidly and his health, which had never been
good, broke down completely. He suffered from rheumatism
and congestion of the brain and was troubled by vague fears
and premonition of death. His deeply religious spirit became
morbidly intensified and Amelia often found him on his
knees in prayer. His opinionated and obstinate disposition,
which was always hard for others to bear, grew worse, and
his superiors were quite willing, if not anxious, to be rid of
him. His reelection as mayor in 1863 was not confirmed by
the Government, so he retired from public office in 1865 on
an annual pension of about $300 and the possession of a very
small estate.

Obliged to begin life anew at 55 years of age, Eaiffeisen
settled at Heddesdorf and started a little cigar factory. Not
getting satisfactory returns he closed this out. He then sold
life insurance and opened up a wine agency, which continued
to be his means of livelihood for many years. He ran in debt
for a while and then began to prosper. But money-making
was of only secondary importance to him, and thenceforth he

THE EAIFFEISEN SYSTEM 283

gave practically all his time, energy and fortune to organiz-
ing rural cooperative credit societies. In 1866 he published a
book, explaining the principles and practices of such societies,
which had a vdde circulation and went through a number of
editions. In 1868 he married again, his first wife having
died in 1863.

In 1882 Emperor William I sent him a letter in apprecia-
tion of his great work in helping the farmers, accompanied by
a donation of about $7,200. A similar mark of respect was
shown by the present Emperor, William II, who gave him
about $4,800. Early in 1888 EaifBeisen became fatally ill
at his home in Heddesdorf, but kept his mind clear till the
end. On March 2, after attending to the routine affairs of
the day, feeling the approach of death, he devoted himself'
to prayer and calmly passed away. His statue stands ia front
of his house in Heddesdorf. The Crown Prince and other
notables of the Empire, prominent representatives from Euro-
pean countries, and thousands of German farmers were pres-
ent at its unveiliug in 1902. He is revered in Germany as
the patron saint of agriculture.

Eaiffeisen was harsh and rigorous, with an irascible tem-
per easily inflamed to anger by contradiction or opposition,
so he did not have many iutimate friends. He presented a
stem appearance with his almost sightless eyes, but his de-
meanor was singularly pleasing when he relaxed himself in
occasional recreation from his arduous and constant labors, or
was engaged in conversation with persons who did not dispute
his views. Habitually he was taciturn and moody. He had
a weak voice and slight talent for public speaking, yet made
a strong impression upon his audiences by the earnest and
logical manner of his address. His book learning was meager,
since all his reading and writing had to be done through
others on account of his semi-blindness, hence his ideas were
mostly original with himself. He was a worker rather than
a student. His strength lay in his indomitable will, his
persistent fidelity to ideals, his ability to toil hard and long
and to make practical use of whatever theoretical knowledge
he possessed, and above aU in his deeply religious nature

384 EUEAL CEEDITS

and charitable spirit wMch made him look upon his self-
imposed task of uplifting the poor as a divine mission.

"Inasmuch as ye have done it unto one of the least of
these my brethren, ye have done it unto me," was his life's
motto, and he denied himself ordiaary comforts, traveled
third-class and stopped at cheap hotels that he might save
money to carry out his mission. As he went up and down
the country and visited his credit societies, the members called
him "good father EaifEeisen," and many Catholic priests
and Protestant ministers acknowledged that his work for co-
operation had more moral effect on the peasantry than all
their sermons and ministrations. But the plans of this
kindly, cranky, half-blind, poor and chronically sick philan-
thropist would often have gone awry had it not been for his
daughter Amelia and several wise friends to whose advice
alone he would listen.

Eaiffeisen's work for cooperation did not begin in earnest
until about a year prior to his retirement from public of&ce,
although long before that time he had made a name for him-
self locally by organizing associations which exhibited coop-
erative features. In 1846 he formed at Weyerbusch an asso-
ciation for buying food and another for baking and selling
bread to the destitute. In 1847 he formed an association to
supply peasants with wheat and potatoes for planting, and in
1849 another to lend money to peasants around Flammers-
f eld and to sell them cattle to be paid for in five annual instal-
ments. Famine was stalking through the land during this
period. It had decimated the population and put the farm-
ing and working classes in abject want. Eaiffeisen was
mayor, the chief civil head of the local government, and he
considered it his public as well as his moral duty to alleviate
this suffering. His associations reduced the price of bread
fifty per cent, and brought about the expected relief. But they
were not, strictly speaking, cooperative. They were simply
groups of benevolent persons who out of charity admitted to
their benefits such of their imfortunate brethren as were
worthy of help, and they were used only for the poor. The
beneficiaries had no voice in their management.

THE EAIFFEISEN SYSTEM 285

The association at Flammersfeld illustrates the type of
credit society with which Eaiffeisen began. It was composed
of 60 wealthy citizens of the place, induced to join perhaps
because of Raiffeisen's political power and influence as mayor.
SiQce they rendered themselves liable for all debts incurred,
he allowed them the entire control and the right to decide
who should be members and receive loans. In 1854 he
founded at Heddesdorf his second credit society along similar
lines. Besides lending to peasants who were in the clutches
of usurers, the Heddesdorf society attempted to find homes
for abandoned children, give employment to mendicants, per-
suade the shiftless to work, and establish a free library. This
ambitious scheme proved a failure and was abandoned after
a few years' trial.

Indeed Eaiffeisen had trouble with every one of his early
societies, ovsdng to the fact that their rich supporters would
not give them any personal service after the enthusiasm he
inspired had died away. He realized eventually that charity
by itself has no lasting effect and that he would have to
utilize more largely the principle of self-help. One of Eaif-
feisen's letters on this subject showing that he reached this
conclusion after studying Schulze-Delitzsch's work has been
given in a previous chapter. In another written in the same
vein he said: "I have decided to form a society upon this
plan [of self-help]. The thing has succeeded perfectly in
the societies founded by Schulze-Delitzsch."

This new society was started in 1864 at Heddesdorf with
the sole object of granting loans to members recruited within
that locality, but it was preceded by two years by the mutual
credit society at Anhausen for the organization of which
Eaiffeisen was only partly responsible. The Anhausen so-
ciety not only accorded credit but also bought fertilizers, seed
and oil-cake to sell to members, with the hope, as announced
by its chief organizer, that weU-to-do persons not lq need of
loans would be attracted to become members by the cheap ,
wholesale prices of these commodities and thus strengthen the
standing of the society. This dual function subsequently be-
came one of the characteristic features of a German rural-

286 EUEAL CEEDITS

credit society, but its adoption by Eaiffeisen did not occur
until June 13, 1869, when his Heddesdorf loan association
by resolution dated April 25 of the same year was reorganized
on the lines of the Anhausen society. Eaiffeisen at the same
time eliminated the urban population from his consideration
and confined his attention entirely to the farming classes.
Hence, 1869 is the year from which his rural cooperative
credit movement should be dated;

Progress was slow, for he dealt with a densely ignorant
and poverty-stricken people inherently distrustful of innova-
tions, and Eaiffeisen had to build up from the very ground.
The Heddesdorf society stood alone until 1868 when five
others were formed. Twenty-two more were added in 1869.
After 1880 the number began steadily to increase and at the
time of Eaiffeisen's death there were 425 of his societies in
existence. Between 1890 and 1894 the growth was very
rapid. In 1912 there was in Germany one rural cooperative
association for every 2,494 inhabitants and for every 3,365
acres of agricultural land, and two-thirds of these were credit
societies, not aU, however, of the pure Eaiffeisen type.

In substitutiug Sehulze-Delitzsch's self-help idea for char-
ity, Eaiffeisen did not accept his rival's methods of organiza-
tion and business, nor did he surrender his own conviction
that the rich and the well-to-do should join with the poor in
order to give standing to the credit societies. Indeed he
firmly adhered to his original arrangement in this particular
and continued to insist that the wealthy members should be
accorded a voice in the management proportioned to the in-
crease of strength which they added to the societies by becom-
ing members. TTnlike Schulze-Delitzseh, Eaiffeisen was not
afraid of the wealthy and powerful, because, as will be seen
later, his organization was such as to prevent their exercising
any undue influence, even if the societies had the good for-
tune to induce large numbers of them to come in.
/■ Indeed, the systems evolved by these two founders of co-
/operative credit differ in so many respects that it is quite im-
( possible for them to act in harmony, although they have the
■ same object of creating credit for small amounts on the col-

THE EAIFFEISEN SYSTEM 287

lectivity of borrowers. Schulze-Delitzsch believed in a large,
mixed membership drawn from an imrestrieted area, Eaif-
feisen in a small membership of one class confined to an area
containing not more than 3,000 inhabitants. Schulze-
Delitzsch believed in fair salaries and compensation,
Eaiffeisen, in gratuitous service. Schulze-Delitzsch believed
that a society should declare as large dividends as
possible-; Eaiffeisen, that it should make no distribution of
profit. Schulze-Delitzsch believed that a society should do
a general banking business on three months' paper, and
he abandoned the idea of watching the use of the money;
Eaiffeisen favored only the simplest kind of transactions and
long-time loans running for years if necessary and amortiza-
ble or repayable by instalments, and he permitted loans to be
granted for productive purposes alone. Schulze-Delitzsch be-
lieved in entrance fees and shares of such size as to keep out
persons who did not possess a few assets or a small income.
Eaiffeisen was opposed to a capital formed by the shares of
members and withdrawable at wiU on a short notice. He
placed in its stead what he called the indivisible reserve, ac-
cumidated from slight additions to the interest rate of the
loans, which remained the permanent property of the society,
to be used as a guaranty and also as a working fund and in
case of dissolution to be turned over to some new credit so-
ciety which might be organized in the locality. As to mem-
bers, he welcomed anyone whose character was vouched for
by neighbors, even if he did not have a cent to his name.

Finally, the aim of the societies of Schulze-Delitzsch was
purely materialistic, while the aim of Eaiffeisen's associa-
tions was humanitarian. In fact Eaiffeisen was a layman
preacher, teaching non-confessional Christianity and broth-
erly love, and he strove to make each of his societies a center
of educational and moral influence in its little community, as
well as a source from which its members might obtain credit,
money and all other things needed for acquiring and improv-
ing their farms and carrying on enterprises of an agricul-
tural nature. Inasmuch as he knew that unlimited liability
was the best way to inspire mutual trust and enforce mutual

288 EUEAL CEEDITS

self-help, lie did not temporize with it as Sehulze-Delitzseh
did, but made it a cardinal principle. Furthermore, he wished
to create a complete solidarity of interest in the class for
whom he toiled; hence he strove to erect a great centralized
system with himself as the supreme dictatorial head, while
Schulze-Delitzsch thought that every society should take care
of itself and join others only for convenience of exchange,
propaganda, and standardizing methods and practices.
"^ The chief point in which the EaifEeisen society differed
in form from the Schulze-Delitzsch type was its absence of
shares, but after Schulze-Delitzsch had forced his views upon
the legislature and the second German law on cooperation was
passed in 1889, requiriag a capital stock, they, became prac-
tically alike in regard to organization and administration.
As required by this law, all Eaiffeiscn societies now have
share capital, but this fact has not caused any change in
the original spirit and purpose. The size of the share is
fixed at $2.50; it may be bought on time, so that the mem-
ber need not put up a cent on joining, since entrance fees
are not exacted. The dividend on this small share is never
allowed to exceed the rate of interest charged to members on
loans, and in the great majority of cases none is distributed in
cash, but the sum due each shareholder is used for paying his
subscription to the Federation's periodicals. The profits of the
society are used, first, to make good any impairment that the
paid-up capital may have suffered, one-fiJth of the remainder
is devoted to social welfare work, and the rest is transferred to
the reserves. The reserves consist of a fund to cover annual
losses and another known as the foundation fimd. No
figure is fixed for their size, but they are allowed to accumu-
late until they are large enough to supply the society with
the necessary working capital, make it independent of outside
assistance, and enable it to support some object of general
utUity for the benefit of the members. Both funds are in-
divisible, that is, in the event of dissolution they are not dis-
tributed among the members but are turned over to the
Central Bank of the system for organizing a new society in
the same place. If no society is formed within 30 years, they

THE EAIPFEISEF SYSTEM 289

become the property of the communej to be applied to some
local public purpose.

The committee of management of a local society consists
of three members elected for four years, two or three of them
retiring every two years; it meets once a month. The board
of supervision consists of three to nine members elected for
three years, one-third retiring each year; it meets regularly
four times a year. Their duties correspond with the duties of
similar officers in the Schulze-Delitzsch societies, with the ad-
dition that the managers must oversee the use of loans and
attend to whatever buying and selling is done by the society.
The only paid officer is the secretary, appointed by the mem-
bers for four years, who acts as bookkeeper and treasuser ; he
may not be a member of either the board or the committee.
The unlimited liability assumed by the members runs directly
in favor of the creditors as well as of the society. Eetire-
ments are allowed on six; weeks' notice to take efEect at the
end of the year. The members meet regularly once in the
spring and again in the fall. The majority prevails, except
that a three-fourths' vote is required for dismissing man-
agers, altering the articles of agreement or dissolving the so-
ciety. These meetings are held not only for transaetiag busi-
ness but also for hearing lectures, exchanging views and dis-
cussing matters of general interest.

Besides granting credit to members and receiving de-
posits, the Eaiffeisen credit societies may undertake the pur-
chase ia common of farm supplies, machinery and breeding
animals to be used in common, the sale in common of farm
produce and the purchase of tracts of land to be resold to
members. The purchases do not include groceries or house-
hold necessities. They are confined to such commodities as
seed, fertilizer, machines, coal, etc., by the car load at whole-
sale prices, and all may be bought from the society by the
members on time. This commercial business is on the in-
crease, and as a result a great deal of credit is extended on
current accounts. Loans of over one year must be repaid
in annual instalments or in sums of which the principal is a
multiple. Shorter loans may be renewed by periods of three

290 EUEAL CEEDITS

months up to two years. The times of payment are fixed to
suit the borrower and the purpose of the loan. The society
reserves the right to recall all loans on four weeks' notice and
always requires security. The least security accepted is the
indorsement of some guarantor known to be good for the
amount. On real-estate mortgages two-thirds of the value of
the property is the limit.

Eaiffeisen required each of his credit societies to become a
shareholder in the Central Agricultural- Loan Bank and a
member of the General Federation of the Eural Cooperative
Societies of Germany and of the union thereunder to which
it shoiild be assigned, and also to buy its supplies from
Eaiffeisen, Fassbender and Company. He was the managing
head of these three institutions and formed them in accord-
ance with his aim of bringing about the consolidation of the
interests of all German farmers by means of a great central-
ized system. The firm of Eaiffeisen, Fassbender and Com-
pany, consisting of his daughter Amelia, an adviser and him-
self, was formed by Eaiffeisen in 1881 by turning over to it his
wine business, the general agency he held of a large life-
insurance company, and $3,120 in cash. It sold the wine
business and bought a press for doing the printing of the
unions and publishing the journal of the Federation. But
its principal business was to buy supplies at wholesale or on
commission to sell to the associations. The profits were used
entirely for paying salaries and expenses of the ofiBcers and
employees of the system and for creating a permanent fund
for perpetuating the work. The Central Bank took over this
firm in 1899 and in 1909 sold assets and good will to the
unions, which thereupon organized cooperative societies with
limited liability to handle their part of its business.

The Central Agricultural Loan Bank was organized in
1876. Three provincial banks and a general bank had been
founded in 1872 and 1874, but they were dissolved by the
courts because the laws at that time did not allow one asso-
ciation to combine with another nor an association without
shares to do a banking business. Consequently the Central
Agricultural Loan Bank was formed as a joint-stock com-

THE RAIFFEISEN" SYSTEM 291

pany and at the start its shares were held by of&cials in
trust for the system. The present capital is $2,400,000,
divided into shares of $240 each, which may be held only by
credit societies and the Bank's officials. The largest holding
is five shares. The bank has 13 branches and is managed by
a president, an advisory council consisting of the heads of the
branches, and a board of supervision composed of representa-
tives from each union. The president is selected by the board
from among the members of the council. The branches have
advisory councils of their own and all business with the local
associations is done through them. Formerly the Central
Agricultural Loan Bank dealt only with credit societies and
as a result a number of provincial banks were formed for the
other societies, but now its facilities are open to any kind of
association in the system. Dividends in excess of four per
cent are never declared, since the bank is not run for profit.

The General Federation of the Eural Cooperative Socie-
ties of Germany was formed in 1877 for the purpose of
protecting the interests of the societies, giving advice and
carrying on the work of propaganda and organization. It
owns a library and press, and since the firm of EaifEeisen,
Fassbender and Company went out of existence it has printed
and published the bimonthly paper, the almanac, annual
reports, blank forms and pamphlets of useful agricultural
information. It trains employees and has obtained contracts
with insurance companies for cheap rates for farmers. For-
merly it received state aid, but now its sources of income are
the sale of its printing and literature, commissions on insur-
ance and contributions from adherents and from the Central
Agricultural Loan Bank. Under the Federation are groups
of local societies called imions. The number of unions is 13
and the larger are divided into sub-unions.

The unions are in reality provincial federations and they
have assumed great importance since the law of 1889 gave
them the right to appoint official auditors for their local
societies. The officers are usually identical with the officers
of the branches of the Central Agricultural Loan Bank and
are the active and prominent members through whom the

S92 ETJEAL CEEDITS

Federation does most of its work for strengthening and ex-
tending the system. Originally the unions were simply parts
of the Federation but in 1905 they all became independent
bodies with their own charters or articles of agreement.

Many cooperative societies for production, distribution
and other purposes sprang up in Germany along Eaiffeisen's
lines during his lifetime but he did not pay much attention
to them. His heart was with the credit associations alone.
He wished each to embrace all the activities of its members;
to serve as their medium for the purchase of agricultural sup-
plies and equipment and for the sale of farm produce; and
to be their meeting place for settling disputes, exchanging
views and experiences and gathering useful information, and
their social center for improving their intellectual, moral and
material welfare, for helping their weak brethren, strengthen-
ing the love of home and country among themselves, and
radiating a compelling influence for the general good upon
the entire rural population within the small area of its opera-
tions. This comprehensive and humanitarian plan, devised
by the founder, is still followed in Germany, and the last
model articles of agreement for credit societies (1910) dis-
tinctly state that they must rest upon a Christian and pa-
triotic basis.

It is quite easy, of course, to get the poor and those
who want to borrow to join a society of such scope and spirit,
but what inducement is there for the prosperous and well-to-
do to become members? Why should an owner of a quarter
section of fertile land, in no need of a loan, pool fortunes
with an ignorant tiller of a five-acre patch enciunbered with
debt? Yet Eaiffeisen always urged the big and the little,
the rich and the poor, to come together, and today the
thousands of German societies of his type contain all these
elements and are usually managed as an act of grace by the
members who are financially the stronger. How has this
marvel been accomplished? The reason is plain. The so-
cieties, in addition to their splendid credit and banking fa-
cilities created by provincial and national interrelations, fur-
nish cheap and convenient means of trade in agricultural

THE EAIFFEISEK SYSTEM 293

necessities, and are so inherently safe and sound because of
their organic arrangement that never once has a local society
occasioned loss to a depositor or creditor nor a caU for unequal
assessment on members to meet its obligations. This proof
of the practical lack of risk and the suasion exerted by ele-
vating the moral tone, educating the business sense, and bind-
ing in complete solidarity the social and material interests of
the farmers of the neighborhood, attract and even force aU
classes, without regard to their financial standing, to seek
admittance to the societies.

The poor are not afraid of the rich for only one vote is
allowed a member. Indeed, since the right to withdraw may
be exercised on a few weeks' notice, the poor are inclined to
be conservative and to yield the control to the rich, because
if the latter should desert in numbers the society might be
dissolved and the poor forfeit to the public whatever they
had paid into the reserves. The unlimited liability, which
still remains the corner-stone of the EaifEeisen system, is
harder on the poor than on the rich, as assessments for losses
are made share and share alike and might completely wipe
out a small estate without noticeably diminishing a large
one. Hence unlimited liability is safer for the rich than
for the poor in the society, but it gives rise to no fear or
anxiety in agricultural regions, where alone, indeed, it seems
possible to be practised, because there the risk is so remote
as to be merely theoretical.

The members of a Eaiffeisen society, it must be remem-
bered, are all neighbors, carefully selected on account of their
good characters, iudustrious habits and friendly dispositions.
The shiftless and quarrelsome are barred.. All have some
visible and tangible assets, their farms, or, if they be only ten-
ants, livestock and equipment, so that if one of them
receives a loan, he wiU likely be able to repay it, because
the ofiBcers who are intimately acquainted with him know
beforehand whether he is good for the amount and besides
they see that he uses the loan for the specified productive
purpose for which it was granted. But if their judgment
should be wrong or the crop or venture fail, there are many

294 EUEAL CEEDITS

expedients to which the society may resort before calluig
on the members' unlimited liability. In the first place, if the
property of the borrower brings nothing on execution, the
society may sue his indorsers. Then, if by any chance a
deficiency remains, it may raise the interest rate on other
loans to cover the loss, since they are all recallable on a few
weeks' notice; or, it may charge a little more for its bank-
ing services or raise the selling price of supplies. This would
not materially affect members, because supplies are bought
and sold at wholesale and services are rendered without charge
or at a lower figure than that of non-cooperative institutions.
Thus step after step may be taken before the unlimited lia-
bility is reached, and it is protected from creditors until the
society has exhausted all its profits and means of increasing
its profits and all its capital, reserve and foundation fund.
Such an eventuality is highly improbable, because specula-
tion is forbidden and offers no temptation to oiEcials who
cannot receive any gain and must suffer along with the other
members for any losses resulting from a risky transaction,
while if mismanagement should appear it could not long
continue, since the members have the right of summary dis-
missal of offending of5cials and also of dissolving the society
if they find it in failing circumstances and winding up its
affairs.

The Eaiffeisen society is a perfect organ for facilitating
the flow of capital and cheapening credit for agriculture.
The record of the thousands of these little banis in Germany
of never having lost a cent belonging to the millions of peo-
ple who have dealt with them during the past 50 years is
unparalleled in the history of finance. It is so marvelous as
to be unbelievable by those not acquainted with the facts.
The hundreds of millions of dollars which they put in circu-
lation during that period rescued the German farmers from
usury, poverty and apathetic despair, made them their own
bankers, merchants and instructors, raised them in the scale
of life, and put them in the way of helping themselves and
their neighbors. Eaiffeisen made the dollar beneficent with-
out interfering with its usefulness. He was the first man

THE KAIFFEISEN SYSTEM 295

to understand the credit value of farmers and to utilize it for
their financial needs. The Schulze-Delitzsch credit societies
require their large shares to be paid in small weekly or
monthly instalments ia order to enforce saving and they
strengthen the habit of thrift thus formed by arousing a
cupidity for big dividends; consequently the interest rate
on their loans is usually as high as that charged by ordinary
banks. But Eaiffeisen would not tolerate dividends because
they benefited the more prosperous members at the expense of
the borrowers and interfered with the development of a true
spirit of mutuality within the society. As a result of this
absence of the spirit of lucre, fratemi^ reigns supreme in his
societies and the interest rate on loans is often as low as
that on the safest kind of securities. Eaiffeisen was opposed
to a capital stock because he thought that the best place for
farmers to put their savings was in the land, and he con-
sidered that periodical payments on long-time loans was as an
effective way to encourage thrift as periodical payments on
shares.

Eaiffeisen was also the first man to realize that coopera-
tion could not attain its fidl usefulness for agriculture with-
out combination, and that there had to be cooperation among
the cooperative societies as close as that among the individual
members. For this reason he established his branch banks
and Central Agricultural Loan Bank, his unions and sub-
unions, and over all the Federation, to weld the local units
together in a great national economic force for their mutual
protection and assistance, preserve them in their harmonious
relations, and help the farmers to live and work according
to the principles which he laid down of brotherly love and
Christian charity. The firm belief that Eaiffeisen had in the
lasting value of these principles and his other ideas, and his
intention to keep them alive forever are shown by his crea-
tion of indivisible reserves, which having accumulated in the
societies for nearly two generations, now amount to some
millions of doUars and serve as a permanent fund donated
to the agricultural public for carrying on and perpetuating
his system in Germany.

CHAPTER XXIII

GEEMAN SYSTEMS AT PRESENT

Listributive Societies of William Haas. — Imperial Federation of
Agricultural Cooperative Societies and the Eaiffeisen General
Federation. — ^Unions, or Local Cooperative Associations. — State
Aid. — ^Ineome and Audit of the Unions. — Examples of Failures
among Societies and Banks. — Cooperative Banks for Agricul-
tural Systems. — ^Prussian Central Cooperative Bank. Small
Credit Societies at Base of Whole System. — Their Organiza-
tion, Rules, and Liabilities. — Statistics.

The cooperative societies attached to the federations of
Schiilze-Delitzsch and Eaiffeisen were not the only ones estab-
lished ia Germany during their lives. The work of these
founders of cooperation created a movement which advanced
beyond their personal control, and in a number of the German
states their priaciples were used or adapted for forming
many societies for various cooperative purposes, which had
been organized in groups by imitators who did not recog-
nize their leadership.

The most prominent of these new men was William Haas,
who was bom at Darmstadt in 1839 and for 40 years played
an important part in agricultural cooperation before his death
in 1913. Haas' activities began ia 1872 by founding an agri-
cultural distributive society at Friedberg in Hesse. The dis-
tributive, next to the credit, societies were the earliest form
which cooperation assumed in Germany and they had a rapid
development in Hesse. Their objects were to trade in cattle
and to make collective purchases of feed, fertilizer and seed
for sale to members, but they were handicapped by the fact
that each acted independently of the others. Haas conceived
the plan of combining all the societies in the Grand Duchy

296

GERMAN SYSTEMS AT PEESENT 297

into a union. This was done in IST'S and Haas was elected
president. The union opened its doors to some other Hessian
agricultural cooperative societies in 1890, and at the same
time, ceasing to act as the business agent of its adherents,
it formed a central society for collective purchase and lim-
ited its own functions to auditing, inspecting and represent-
ing the general interests of the societies. The method adopted
in Hesse was followed in adjoining provinces, and in 1883
Haas realized his idea of uniting the provincial unions into
an organization which later on took the name of the Imperial
Federation of Agricultural Cooperative Societies, with him-
self as director-general. Thenceforth Haas became the
strongest and most conspicuous figure in cooperation in Ger-
many, for Schulze-Delitzsch had died and Eaifleisen was
reaching the end of his days.

The societies belonging to the Schulze-Delitzsch federa-
tion, although they have many members who are farmers,
are all located in cities and have a distinctly urban character.
Haas and Eaifleisen were interested in agriculture alone, but
Haas opposed the mixing of religion and business and also
the centralization which Eaiffeisen favored. Moreover, he
stood neutral as regards share capital and unlimited liability,
and used what seemed to him good of both the Schulze-
Delitzsch and Eaiffeisen systems wherever it seemed desirable
or expedient to do so. During its first five years his Imperial
Federation acted only as the center for cooperative purchas-
ing societies and dairies, but after EaifEeisen's death in 1888
it decided to admit credit societies and then a bitter rivalry
and struggle for mastery ensued. The Imperial Federation
won in 1905 when all the Eaiffeisen societies went over to it,
retaining, however, their membership in the General Fed-
eration for guidance, instruction and the preservation of the
principles of their founder. This arrangement proved un-
satisfactory and was dissolved on May 30, 1913 ; hence there
are now two systems of agricultural cooperation in Germany,
the duality of which often leads to useless duplication of
work.

The Imperial Federation has maintained its dominance in

298 KTJEAL CEEDITS

spite of the secession and the great majority of the rural co-
operative societies are allied with it. Its headquarters are at
Darmstadt, and it embraces the whole of Germany and the
German protectorates. Membership is open to all unions of
agricultural societies, their central organizations, and indi-
vidual associations in the protectorates and foreign lands. Its
administration is composed of three parts. The first is the
director-general and two vice-presidents elected for five years
at the annual convention of its adherents, the second is the
general committee, composed of the director-general, the
managers of the unions, and six representatives of the provin-
cial cooperative banks and trading associations and the na-
tional bank and institutions of the Federation, which are
empowered to decide upon matters of importance in case of
urgency, prepare resolutions and carry out those that are
adopted at the annual convention, pass upon the accounts
and applications for membership, and fix the budget and the
contributions of members; the third is an executive council
consisting of the director-general, vice-presidents and seven
persons selected from the general committee for five years,
whose duties are to give advice to officials, prepare the agenda
for the annual convention, examine the accounts, draw up
the annual report and all resolutions and proposals to be
submitted to the general committee, and decide on the expul-
sion of adhering societies. In addition there are various spe-
cial committees formed for particular groups of societies.

Besides holding the annual convention, the activities of
the Imperial Federation include the publishing of a yearbook,
an official organ known as the Agricultural Cooperative Press,
issued twice a month for free distribution to its adherents,
and a monthly bulletin which is sent to all newspapers and
periodicals on its exchange list. It publishes also books and
pamphlets on agricultural and cooperative subjects. It con-
ducts a school to train young men to be officers in the coop-
erative associations and strives to secure positions for them
after graduation. It holds lecture courses and awards prizes
to stimulate efficiency, gives liberal salaries, grants pensions to
widows and orphans of officers, and owns two hotels opened

GEEMAN SYSTEMS AT PRESENT 299

during the summer for officers and their families at reason-
able rates. It retains a lawyer and a corps of experts for
constructing granaries and electrical plants and for purchas-
ing chemical fertilizers, and has made contracts for preferen-
tial rates of insurance against loss or theft of money and
valuables sent by mail; and finally it audits the accounts of
the unions and institutions directly belonging to it.

The General Federation has its headquarters at Berlin.
Membership is open to auditing unions, credit societies and
societies for other cooperative purposes, central banks and
central associations which have been organized upon and fol-
low the principles of EaifEeisen. Its administration consists
of a director-general and a deputy; a general committee com-
posed of these officials, the managers of the imions, and the
directors of the Central Agricultural Loan Bank ; and a board
of supervision identical with the board of supervision of
that bank. Its activities are similar to those of the Imperial
Federation and it has all the objects and purposes of the
latter, with the addition that it strives to promote the moral,
intellectual and material welfare of farmers by encouraging
the practice of Christianity.

Since the enactment of the law of 1889 giving to the
unions the power to act as ofBcial auditors, and especially
since the decentralization of the systems which was carried
into complete effect in 1905, the unions or groups of local
cooperative associations have become the most important fac-
tors in the two rural federations for extending cooperation
and coordinating the local societies into systems. The union
was the first form of combination. The federations, in fact,
started as unions and attained their present position by en-
larging their scope and areas. The unions are organized by
provinces in Prussia and generally by states in the rest of
Germany, and they comprise over 92 per cent of all the local
societies. There are some unions organized for special classes
of societies, such as dairy associations. Formerly most of
the unions did collective buying and selling for members
but now all except two have abandoned this business and
serve in their respective areas as the federations serve through-

300 EUEAL CEEDITS

out the nation. Three unions in Wiirttemberg, Baden and
Treves are so large as to rival the federations, and they have
refused to attach themselves to either of the systems. The
largest union in a federation is that of Bavaria, with 2,814
societies, and the smallest is that of Alsace-Lorraine, with
23 societies. Between these extremes the number varies from
38 up to 1,417, with an average of 500. The sub-unions have
ten to thirty societies. The administration of the union is the
triple arrangement familiar in all cooperative organizations,
and consists of an executive head and deputies, a committee
of management, and a board of directors or supervisors,
elected at an annual meeting of the adhering societies, in
which each society has only one vote. Thus the union has
its own oflBcers, funds and sources of income ; this assures its
independence and the complete decentralization which Haas
fought for so long.

The older unions were chartered by their own provinces
or states but the newer ones were generally organized under
the Imperial laws for non-profit-making associations. Nearly
every province gives state aid of some sort. Alsace-Lor-
raine grants $1,342 to the unions annually and has opened
an account with them for $338,000 at four per cent. In
Brandenburg the union gets $1,520 a year. In Baden the
unions receive $4,563 annually, while the local societies are
allowed a drawing account up to $507,000 at three per cent
and public moneys are deposited with the credit societies. In
Bavaria nearly $169,000 was given for rural cooperation be-
tween 1897 and 1904, and since the latter date the annual
allowance has been maintained. East Prussia gives annually
$810; Hanover, $1,352; Hesse, $1,690; Hesse-Cassel, $1,204;
Hesse-Kassau, $845; Posen, $3,535; the Ehine Province,
$1,521; Prussian Saxony, $5,427; Silesia, $2,366 at least;
Schleswig-Holstein and Westphalia, $1,521; West Prussia,
$400 ; and Saxony, $4,056 ; while Westphalia pays the salary
of the managing director of the union. Small sums ranging
from $12 to $50 also are given to new local societies by
Brandenburg, Bast Prussia, Hanover, Hesse-Cassel, Pom-
erania, Posen, West Prussia and Wiirttemberg. Some of the

GEEMA]!T SYSTEMS AT PEESENT 301

provinces pay part of the cost of training cooperative officers.

The state donations emimerated comprise loans or- the ex-
tension of credit at low interest rates to the hanks and direct
grants of money for education, propaganda and organization
work to the unions. They do not includCj however, all the
state aid given in Germany to cooperation. Other state ap-
propriations have been made, while the chambers of agri-
cnltnre have been exceedingly liberal and active in its behalf.
These are semi-pnblic bodies which Prussia and other German
states have required to be established by law. Their object
is the care of all matters pertaining to forestry and agricul-
ture, the improvement of the technical and economic educa-
tion of the farmers, and the advancement of cooperation.
Money for the expenses and projects of the chambers of agri-
culture is raised by taxing farms within their jurisdiction
up to an amount not exceeding one-half of one per cent of
the regular land tax. Some provinces also make special ap-
propriations for them. Membership is open, among others,
to resident persons making their living by farming and to
representatives of cooperative associations. Members must be
elected by the county councils and hold office for six years.
The number of members varies from 32 to 124 for each
chamber. The German Council of Agriculture, composed of
75 delegates from the chambers of agriculture, serves as the
chief adviser of the Government on all agricultural aflfairs.

Generally speaking, state aid is favored by the rural and
opposed by the urban societies. It is not extended as much
as formerly but is stiU considerable, and the aggregate of
the sums granted since Germany changed from a hostile to a
friendly attitude towards cooperation is enormous. Although
the first cooperative convention called by Schulze-Delitzsch
in 1859 was not allowed to be held in Saxony, yet in 1865
Prussia appointed a commission to devise ways and means for
promoting cooperation among factory workers. Some years
later the King of Prussia gave personal gifts to Eaiffeisen
and provided also for establishing cooperative societies among
striking SHesian weavers to prevent them from drifting into
socialism. Since 1895 Prussia has advanced hundreds of

302 ETJEAL CEEDITS

thousands of dollars to its central cooperative banking insti-
tution and about $1,650,000 to cooperative granaries and
cattle-seUing societies. During the lasi 30 years the German
Government has had a marked predilection for agricultural
cooperation and has encouraged its development through
miaisters of the Imperial Cabinet, provincial governors, local
officials, the chambers of agriculture, and public school
teachers.

But state aid and governmental encouragement have never
been more than partial and incidental means of support. The
chief source of income of the unions is contributions from the
local societies and provincial cooperative banks and trading
societies and in ease of need from the federations. The method
of assessment is not uniform. Usually, however, annual dues
are charged and a percentage of the turnover of business is
exacted, while each society must pay the actual expense in-
curred or stated amounts for all services rendered it and the
cost or fixed price of articles which it is bound to buy from
the union, such as account books, textbooks, models, forms,
office supplies, periodicals and publications. Most of the
unions receive also from the trading societies their net profits
remaining after a moderate dividend has been paid on shares
and a levy set aside for the reserve. In this way the unions
obtain all the money they need for themselves and for main-
taining the federations. It must be borne in mind that, with
several exceptions, the unions generally have nothing to do
whatever with financial or business transactions but confine
their activities to propaganda, educational and organization
work, safeguarding and furtheriug the general interests of
the societies and their systems, and auditing the societies at
regular intervals. The latter has become the most important
duty of the unions since the law of 1889 requires all regis-
tered cooperative societies to submit to an audit.

The compulsory outside audit, an audit by someone
neither an officer nor member of the society, has been the
greatest factor in standardizing business methods, enforcing
conformity to statutory and conventional requirements, and
giving strength and public confidence to cooperation in Ger-

GERMAN SYSTEMS AT PRESENT 303

many. Sehulze-Delitzsch introduced it before 1868, Raiffei-
sen adopted it in 1880, and Haas had insisted upon it from
the start, so it was self-imposed before the law made it ob-
ligatory. The GoTFemment debated a long time whether or
not to take the audit upon itself, but realizing the difficul-
ties and expense of examining by public employees the petty
and voluminous affairs of thousands of small societies, it
decided to leave the auditing to their unions, or if they were
attached to no union, to persons appointed by the courts.
The law provides that this audit must be made every second
year, and must cover an inspection of the books, accounts,
cash, securities and goods. Nearly all the unions make it
annually, either upon notice or as a surprise, and besides
examining the assets and liabilities minutely, they investigate
the acts and capacity of officers, see whether the laws and
by-laws have been observed, inspect and supervise the entire
situation of the local societies, and make what recommenda-
tions they deem fit. The only way in which they can enforce
these recommendations, however, is by expelling the delin-
quent society from the xmion or by suggesting that the
banks refuse it credit.

In January, 1913, the Imperial Federation included 41
tinions with 71 provincial associations and 20,780 local so-
cieties, of which 13,736 were credit societies. The total num-
ber of individual members exceeded 2,000,000. It had also
four central institutions and the German Wine Growers' So-
ciety of Palestine. But in May of that year, the General
Federation seceded and took away its 13 unions with their
4,626 local credit societies, seven provincial trading associa-
tions and eight provincial banks, and its Central Agricul-
tural Loan Bank, with approximately 450,000 individual
members. The central institutions remaining were the Im-
perial Cooperative Bank, a joint-stock company; the Cattle
Selling Society, a limited-liability association ; and the Potash
Purchasing Company, also a limited-liability concern. The
shares in these institutions were owned mainly by the pro-
vincial associations. All these associations, whether for bank-
ing or business, are likewise organized on the limited-liability

304 EUEAL CEEDITS

plan, and their shares are owned by the local societies, some
of which have Limited and others nnlimited liability. All the
provincial associations of the Eaiffeisen federation have been
organized in the same way and its Central Agricultural Loan
Bank is a joint-stock company. Hence neither of the sys-
tems has a pure form of cooperative organization at the top,
whUe imlimited liability does not appear anywhere except
among the basic units. The farmers individually have no
ownership or power of control in this great superstructure
which has been erected upon them and with their money,
while' some of the provincial associations and central insti-
tutions are so large that the local societies, which have sup-
plied the funds for their capital, take no part or interest
in their management. While the ofiBcers have been in the
main honest, faithful and capable, instances of bad judg-
ment, incompetence and even corruption have occurred with
serious consequences.

The grain-selling associations of Strassburg failed in
1904, the Central Society of German Wine Growers in 1905,
and the Bavarian Hop Growers' Society in 1909. The Co-
operative Tobacco Sales Society of the Pfalz and the grain-
seUing societies of Ludwigshafen met with financial reverses
in 1911. These were all very large concerns formed by
shares subscribed by the Eaiffeisen local societies. The losses
reached into the millions. In fact, the Central Agricultural
Loan Bank and many local credit societies faced ruin be-
cause of the inability of the sales associations to pay back
money which had been borrowed, and were saved only by the
bonding of the debt to the Central Agricultural Loan Bank
and in one case through the assistance of the state. The
Central Agricultural Loan Bank asked each of the local credit
societies to pay $750 to be returned in instalments for 15
years. A few of the Bavarian and Posen societies refused,
but 3,000 societies complied with the request and thus the
matter was adjusted.

Bad records have been made also within the Imperial
Federation. The loan and savings society of the peasants and
tradespeople of Meder-Modau, near Darmstadt, was declared

GEEMAN SYSTEMS AT PEESENT 305

insolvent in December, 1911. Its deficit amounted to aronnd
$400,000. Most of the members were poor, with assets rang-
ing from $500 down to nothing. One, however, was worth
$50,000 and he had to txirn all of this fortune over to the
creditors. His only hope of recovery lies in the notes of equal
amount which the court compelled the other members to
execute in his favor. The causes of this failure were exces-
sive ambition and a too extensive territory. Unlimited lia-
bility is safe only where operations are restricted to a very
limited area. The Nieder-Modau credit society attracted de-
posits from aU over the province by offering high interest
rates, and more than $750,000 poured in within a few months.
This amount was far in excess of the needs of members, and
the bank made loans to outsiders. Some of the money was
invested in first and second mortgages on building lots and
in speculative ventures in urban real estate. After the crash
the investigation showed that the managers, directors and
supervisors had been remiss in their duties and that the
secretary had been guilty of speculations. One was sen-
tenced and imprisoned for forgery.

In March, 1913, the Central Agricultural Cooperative
Bank of the union at Darmstadt had to undergo liquidation,
owing to the locking up of $2,125,000 in the Cooperative
Bank of Prankfort-on-the-Main and to the default of $2,250,-
000 advanced to the Administration and Sales Cooperative
Society. The latter association was formed a few years ago
to administer and sell the real estate in which various so-
cieties had imwisely invested their deposits and surpluses
for which they had no immediate use. The Frankfort-on-
the-Main bank was founded in 1902 to act as a central insti-
tution for a number of union banks and purchasing asso-
ciations. Deviating from true banking methods, it con-
tracted an alliance with a mismanaged land mortgage com-
pany, was tempted by the chance of making big profits into
risky specxdations in land and mines, and thus went to the
wall. A panic ensued among the adhering members of the
Central Agricultural Cooperative Bank of Darmstadt when
they learned of its connections vsdth these bankrupt concerns.

306 ETJEAL CREDITS

and they began to withdraw deposits and accounts and can-
cel their memberships, but too late to avoid the consequences
of the failure. Their losses exceeded $3,750,000, while other
societies have become so involved with them that a dan-
gerous crisis has arisen in the agricultural cooperative credit
societies of the Grand Duchy of Hesse, due to the fact that
several of the banks grew large too rapidly, became over-
loaded with idle funds and got tangled up with real-estate
transactions.

The recent disasters have had a very bad moral as well
as material effect and illustrate the danger of pyramiding a
large institution upon underlying societies. Nevertheless, the
German agricultural cooperative systems have been created
by thus building provincial or regional and national organi-
zations upon the local units, and they have been able to with-
stand these severe shocks because they are not artificial but
with a few exceptions are the result of slow, cumulative
growth under leaders who have been self-denying, honest
and public-spirited. The experience in Germany, however,
has led to the belief that if agricultural cooperative systems
must have national financial institutions, they should not be
banking organizations to handle funds but rather federal
boards to direct and regulate their flow. This was Schulze-
Delitzsch's original plan, as shown by the bureau of cor-
respondence and exchange which he established.

The mainstay and base of these systems are their banks.
In the Eaifleisen federation are the Central Agricultural Loan
Bank, a banking and trading concern with 12 branches, the
shares of which are owned by the local credit societies, and
eight provincial banks formed for trading societies. The
Imperial Federation has the Imperial Cooperative Bank, the
shares of which are owned by provincial trading associations,
and 36 provincial banks for its local societies. Of the three
independent groups of rural societies, Wiirttemberg and
Treves have their own provincial banks, while Baden has ar-
ranged with a mortgage company to act as its banker. The
provincial banks are usually called union or central banks;
names which describe them more accurately because the banks

GERMAN SYSTEMS AT PRESENT 307

are always attached to unions wMle their area of operations
is not everywhere coterminous with political divisions. The
provincial, union or central banks are all organized as coop-
erative associations with limited liability and have the cus-
tomary committees of management and boards of supervision.
Membership in a bank is open to all registered cooperative
societies irrespective of kind or purpose belonging to its sys-
tem within its area, to its own officers and resident persons,
such as wealthy farmers or large landovmers, although they
may have no need for loans, but they are usually very few;
and to benevolent institutions, chambers of agriculture and
agricultural associations. The average number of members
in a union bank is 500. The value of the share runs from
about $3.50 up to $360, and it is made as large as possible
so as to increase the capital. In some cases the share may be
paid in fixed instalments extending over two years but usually
it must be paid in full upon subscription. A member may
hold a number of shares but according to law a new share
may not be taken out until shares previously subscribed for
have been paid up. The liability assumed is some multiple
of the face value of the share. As a rule it is made high
when the share is small in order to strengthen the credit
standing of the bank, but the tendency is to make it ten
times the value of the share. Whenever the debts of a xmion
bank exceed one-fourth the aggregate liability of members,
the law requires it to be placed in bankruptcy. , i

The working capital of the central or union banks con-
sists of the amounts paid in on shares, deposits from all per-
sons and their credit at their national banks. In accordance
with the usual cooperative rule the shareholding members
must transact all their banking business through the bank and
employ its services for buying stocks and bonds for investment.
An aiiering society's credit is based on the number of shares
held or paid for. This is called the normal credit and the
society is allowed to draw on the bank up to the maximum as
a matter of course without security. If the society needs
credit above the normal limit, the application must be passed
on by the board of supervision and security may be exacted.

308 EimAL CEEDITS

In the branches of the Eaiffeisen Central Agricultural Loan
Bank a different method is pursued. The local societies, it
•will be remembered, are directly connected with it and are
all of the unlimited-liability type. The local societies send
to the branches every year an official statement showing the
value of the collective assets of individual members and from
these statements the bank determines the extent of the credit
which may be accorded to the society. In states where there
is a property tax, ten per cent of the official value of the mem-
bers' combined property may be allowed. Where there is no
property tax, five per cent of the value as determined by the
society's committee of management is the limit. The local
societies use their credit mainly for supplying their individual
members with the smaU sums they require for planting and
marketing their, crops and this is why credit is extended
mostly on current account. But the central banks have of
course the power of granting long-term loans for large defi-
nite amounts, and many of them accommodate their coop-
erative associations in this way for building dairies, ware-
houses, electric plants, and for financing various projects.
It is the losses and the permanent sinking of their funds
through this part of the business which have frequently got
them into trouble. The union banks pay from 3.5 to 4 per
cent on deposits and charge the local societies from 4.5 to 5
per cent for loans and credit, plus a commission of about one-
tenth of one per cent.

The business done is enormous. The total turnover in
■1911 for 34 central or union banks was $1,489;770,300, an
average of about $43,816,918 each, and it was nearly all done
upon deposits of affiliated societies. These reached a total
of $304,145,440. The capital and reserves of each bank av-
erage about $334,467.20, and on these funds all the banks
earned profits, the average being 6.6 per cent. Dividends
ranging from 3.3 to 5 per cent were declared and the balance
of the profits was used largely for increasing the reserves.
The national banks of the systems require the union banks
to do business with them exclusively. All outside dealings
except where absolutely necessary are barred by contract.

GEEMAK SYSTEMS AT PEESENT 309

The turnover of the Imperial Bank in 1911 was $146,404,800,
of the Central Agricultural Loan Bank in 1912, $397,463,480.
In 1912 the 4,636 members of this latter bank owned 10,000
shares on which $2,298,480 had been paid up in cash. The
•dividend was 3.5 per cent. The interest rate on deposits
fluctuated between 3.5 and 4.4 per cent, and on advances be-
tween 4.4 and 4.75 per cent, to which was added one-tenth
of one per cent for commissions.

As already pointed out, most German states give finan-
cial assistance to the unions and their banks, but Prussia,
the birthplace of cooperation on the Continent and the largest
province of the Empire, has far surpassed all others in this
respect. In 1895 it created the Prussian Central Coopera-
tive Bank at Berlin. At that time cooperation, although en-
couraged by the King, had made progress only in small iso-
lated areas. The coordination of the local societies into the
present systems was in evolution. The Central Agricultural
Loan Bank had not yet attained importance. Commercial
banks were ignorant of the principles of cooperative credit
and declined to consider as a practical security the collective
guaranty of persons whom they knew to be individually
weak; moreover they had all the opportunity they desired for
the profitable employment of their funds in the rapidly
expanding trade and commerce. Thus the money markets
were closed to the cooperative societies and they lacked the
cash to make necessary loans to members and to meet -with-
drawals of deposits during the busy seasons. It was to re-
lieve this situation, permanently to remove the cause of the
trouble and to encourage the development of cooperation that
the. Kingdom of Prussia decided to act. The express design
of the Prussian Central Cooperative Bank was to help the
middle classes in town and country by the promotion of co-
operative credit among them. It is a pure governmental in-
stitution and its capital stock of $18,000,000 was granted by
the. Kingdom. The organic act allows union cooperative
banks to participate but so far they have contributed only
$360,000. The bank is managed by a president and four
directors appointed for life by the King, and these with some

310 EUEAL CEEDITS

200 other officials are public employees. An advisory com-
mittee of 30, chosen from the more prominent members of
cooperative associations, serves as a medium of communica-
tion with the latter but it has nothing to do with the manage-
ment. The Bank is supervised by the Minister of Finance
who vdth the Minister of Agriculture directs its policy, and
its accounts are examined by public auditors whose report
must be submitted annually to Parliament for action. Al-
though created for Prussia alone, the Bank eventually tried
to set itself up as the financial head of cooperation through-
out the Empire by attaching to itself the national banks
of the systems, both of which are located within the Kingdom.
It cannot deal directly with local societies. Its charter allows
it to reach them only through the union, central and other
large banks of the systems. In addition to the cooperative
business for which it was especially founded, it may grant
loans to the landschafts, public land banks and public sav-
ings banks, buy and sell securities on commission and receive
deposits. The Bank determines the credit value of a coop-
erative association by the method employed by the union
banks. For a cooperative joint-stock company, it calculates
the credit value upon the net assets as set forth in its annual
statement. But the usual extent of credit allowed the coop-
erative customer is ten times its paid-up capital and reserves,
with an extreme limit of $1,200,000. About 40 per cent of
the credit actually extended is on current account and the
rest by discounting bills of exchange. The Bank does not lend
on mortgage. In 1912 its capital stood at $18,240,000, and
its reserve at $2,040,000; its total turnover of business was
$4,080,000,000, and its profits were $720,000. One-fifth of
the profits went into the reserves as required by law and a
3.3 per cent dividend was declared. It accords a preferen-
tial rate to customers who agree to deal with it exclusively.
The average rates for 1911 were 3 and 3.5 per cent for bal-
ances and loans on current accoimt, 4.09 per cent on bills,
and 5.50 per cent on collateral security, and they generally
foUow those of the National Bank of the Empire.

The position of the Prussian Central Cooperative Bank

GERMAN SYSTEMS AT PEESENT 311

is not as strong with cooperation as formerly. In 1905 the
Central Agricultural Loan Bank of the Eaiffeisen federation
joined it, being forced thereto by heavy losses and the in-
creasing number of societies whose needs it was unable to
supply. This relation was dissolved in 1913 because the Prus-
sian Cooperative Central Bank tried to prevent the Loan
Bank from dealing directly with the local societies and thus
compel it completely to change its organization and business
methods. Up to 1898 the Imperial Federation was friendly
with the Prussian Central Cooperative Bank, but in. that
year violent objections were raised to its credit valuations and
interest rates, and as an outcome the Imperial Cooperative
Bank was founded ia 1903. However, nearly all the imion
banks of the Imperial Federation are now allied with the
Prussian Central Bank. The Schulze-Delitzsch federation
opposes it in principle because of the state aid it enjoys,
but there are more vital reasons for the ill-will which it,
has engendered. The Prussian Central Cooperative Bank
is inclined to treat the head institutions of the federations
as rivals and wishes to abolish them altogether, while they
in their turn resent its forcing of contracts from the union
banks so as to compel them to deal exclusively with it. These
head institutions consider this as an aggression upon their
rights. Moreover, they accuse its management of being bu-
reaucratic and they denounce its accumulation of a big re-
serve as diverting money from the farmers. Above all they
inveigh against this ofiBciaUy directed public institution as a
device of the state to place the entire cooperative system under
the control of the Government. Thus the Prussian Central
Cooperative Bank, although created with the best of inten-
tions, has become the cause of jealousies and dissensions in
German cooperation, exemplifying the troubles invariably
encoimtered by the state in aiding a movement which rests
upon self-help and thrives best by private initiative. Never-
theless, the Bank continues to grow in spite of its critics
and enemies. In 1913 it had for customers 53 union banks,
of which 31 were rural, comprising 10,893 cooperative socie-
ties and 1,090,000 individual members. The 31 urban pro-

313 EUEAL CEEDITS

vincial banks had 622 cooperative societies connected with
them, with 194,000 individual members. It did business also
with eight landschafts, six public land banks, 917 public
savings banks, and 795 other concerns and persons.

In brief, then, the rural cooperative organization of Ger-
many is this: The local credit societies and societies for
other cooperative purposes are grouped, by provinces in Prus-
sia and by states in the rest of the Empire, into unions of
which the majority belong to the Imperial Federation and
the minority to the EaifEeisen General Federation, while a
few are independent. The three unions of Wiirttemberg,
Baden and Treves act as their own federations. Except in
the Eaiffeisen federation the unions have formed for and
out of the local societies thus grouped, union banks, union
associations for collective buying of farm supplies and equip-
ment and collective selling of farm products of the individual
members, and in some cases cooperative creameries, wine cel-
lars, electric light and power plants, and other cooperative
concerns. The Baden union uses an outside mortgage com-
pany as its bank. The regional or union institutions have
formed national bodies, which extend their operations over
the entire country, for the purchase and sale in bulk of ma-
chinery and articles obtained first hand from the manufac-
turers. The credit societies of the Eaiffeisen federation take
care not only of the credit needs of their members but also
buy and sell equipment, supplies and sometimes the products
of their individual members. All of them belong to the
Central Agricultural Loan Bank. Societies not having credit
purposes cannot belong to this bank. Originally they could
not deal with it, so eight of the groups in the Eaiffeisen fed-
eration formed union banks of their own. Now, however,
the Central Agricultural Loan Bank accords its banking fa-
cilities to all societies without regard to their purpose. Fur-
thermore it is closing out its trading business and turning
it over to union or regional associations, of which seven have
already been formed, and it plans eventually to restrict its
branches to banking alone and have them serve as the finan-
cial centers of the imions.

GERMAN SYSTEMS AT PRESENT 313

Topping this elaborate organization is the Prussian Cen-
tral Cooperative Bank, founded, financed and managed by
the state and offering its services to the banks of all the
■unions and federations that will accept its terms and con-
ditions. Since Prussia embraces over 64 per cent of the area
and 66 per cent of the population of Germany, this bank
domiaates the cooperative organization and has become the
chief financial head of all except the banks of the Raiffeisen
federation, which has severed relations with it. The Prussian
Central Cooperative Bank is inspected and supervised by
the Prussian Ministers of Finance and Agriculture and by
Parliament. The other national banks and associations and
the imion banks and associations are audited and supervised
by the federations, and the local societies by the unions. In
this way, over two millions of the ten million German farm-
ers are leagued in mutual support through which they exert
a tremendous influence in reducing interest rates and the
cost of production, manufacture ' and marketing of agricul-
tural products and thereby do infinite good for themselves
and consumers. But at the base of the entire organization
are the credit societies, which are individually so small that
vast numbers transact their business in the country schools
or churches, or in rooms in the village homes or farmhouses
of their officials.

These local units, which for nearly two generations have
been collecting the earnings and savings of members and non-
members and utilizing them for productive agricultural pur-
poses in their immediate neighborhoods and for creating great
interlocked financial and commercial systems for helping one
another in all parts of the Empire, may be formed and dis-
solved almost at will and without expense under the German
law. This law is not an intricate code but is embodied in
one simple statute enacted in 1889 which applies to all kinds
of cooperative associations aKke.

By this law seven persons may form a cooperative asso-
ciation by filing articles of agreement with the recorder of the
district court, and when so registered, it may own stock in
or join another association or cooperative corporation. Tliis

314 EUEAL CKEDITS

enables a weak fagot to become a fasces hard to break, as the
Buropean saying is, which serves as a supporting beam or
stanchion in the great systems which have been created.

Share capital is required. The number and size of the
shares, however, is not prescribed but each member must hold
at least one and pay in ten per cent of its value upon sub-
scription. Dividends may be forbidden, while the articles
of agreement may declare that even the assets shall not be
distributed among the members upon dissolution. This
provision was inserted to favor the Eaiffeisen societies, which
can thus live up to their principles by making the size of
shares merely nominal and writing all profits to the reserves.
Each society must create a reserve, and must state in its
articles what portion of the profits shall be annually set aside
for it and the minimum at which it shall be maintained.
Members have no interest in the reserve, which is in-
divisible.

A society may expel a member for losing his civil rights,
for joining another society, or for changing his residence, and
the articles of agreement may of course assign other reasons
for expidsion and lay down rules for admission. If retire-
ment or expulsion occur, the motive or cause must be entered
on the register at the district court. This register must
always be kept up to date with the record of the members
who are admitted as well as of those who are retired. Mem-
bers may retire at the end of the year upon giviag previous
notice in writing, which the society cannot fix at less than
three months or longer than two years. The amount of the
shares must be returned within six months after member-
ship ceases. Members cannot transfer shares except upon
consent of the society and then only to other members. No
matter how many shares a member may own he has but one
vote and he cannot hold more than one proxy. Proxies are
allowed only for members who are women, corporations and
associations. Thus the actual presence of the members at
the annual and other meetings is assured, while the wealthy
are prevented from gaining the control.

The liability assumed by members may be one of three

GEEMAN SYSTEMS AT PRESENT 315

kinds. Members may be made directly liable without limit
to the society and its creditors ; or liable •without limit to the
society for assessments to meet its debts but not to its cred-
itors; or directly liable to both the society and its creditors
but only for a fixed sum, 'which, however, must never be
lower than the face value of the shares. Among these three
a form of responsibility may be found to suit any group of
cooperatives, large or small. An unlimited society is con-
sidered in failing circumstances if its assets, including cap-
ital and reserves, do not suffice to meet its debts; and a lim-
ited society, if the excess of debts over assets is greater than
one-fo\irth of the aggregate liability assumed by members on
their shares. A society is dissolved by a three-fourths' vote
of the members or by being forced into bankruptcy. The
claims of creditors are barred if not presented within two
years. A member who pays more than an equitable share
has the rights of a creditor against the society for the amount
overpaid.

The same kind of administration is provided for all co-
operative associations, whether they be banks, trading or other
concerns, and this has brought about complete uniformity
of organization and business methods. It consists of a com-
mittee of management of two, and a board of supervision
of three, shareholders, elected at the annual meeting, unless
the articles of agreement designate some other number and
manner of appointment. They must also fix the term of
office. No member may serve simultaneously on both bodies.
The committee transacts the actual business; the board must
supervise it and keep itself informed regarding the affairs of
the society. Salaries may be granted but the board cannot
receive compensation based on a percentage of the profits
or returns from any transaction. This practically takes away
all temptation to speculate or undertake risky ventures. The
shareholders must determine at their annual meeting the
total amount of money which may be borrowed or received on
deposit for the succeeding year and the maximum of credit
to be accorded to members. A society may have one or more
objects, all of them being indicated in its title, and may do

316 ETJEAL CREDITS

business with outsiders, but a credit society may extend credit
to members only.

The alternative which the law allows a society of hav-
ing its obligatory biennial audit made by a union instead of
by an expert appointed by the court may be exercised only
when it belongs to a union which has no financial or com-
mercial objects and whose sole purpose, besides auditing, is
the care of the common economic interests of its adherents.
The board of supervision must take part in the audit and
the report of it must be submitted to the shareholders at
their next annual meeting. A certificate stating that the
audit has been taken must be forwarded to the union and
filed with the recorder of the district court. The annual
statements showing the financial condition of the society
and the number of members retired, admitted and remain-
ing, together with aU matters of importance relating to its
afiairs, must be published in the ofiBcial newspapers ; thus com-
plete publicity is assured. No special privileges are granted
except exemption from certain taxes and the state aid men-
tioned above.

In 1913 there were 26,576 rural cooperative societies reg-
istered under this law in Germany. Of these 98 were cen-
tral institutions; 16,927 credit societies; 2,409 supply socie-
ties ; 3,313 dairies ; 175 milk-sellLng stations ; and 3,654 socie-
ties for various other purposes. Thus the credit societies
comprise two-thirds of the whole. They began to appear
in numbers in the nineties of the last century, and since then
they have been increasing by leaps and bounds. It has been
no unusual thing for hundreds of new societies to be formed
in a year. They are unevenly distributed geographically.
Many parts of the country still lack them, and much re-
mains to be done even in Germany in extending cooperation.

The average membership of each rural society is under
100 and its area of operations contains less than 2,000 souls.
The members are drawn from various occupations; among
them are found country merchants, artisans, laborers, farm
hands, tenants, school teachers, priests, preachers, and local
public ofi&cials. But about 70 per cent are farmers, and the

GEEMAN SYSTEMS AT PRESENT 317

majority are heads of families and many own their own land.
Over 93 per cent of the societies have imposed imlimited lia-
bility. A great many credit societies of the Imperial Fed-
eration and independent unions, like the Eaiffeisen societies,
supply their members with seed, fodder, and fertilizer, sell
or rent implements and machines to them, and buy and sell
their products. Wherever there is no regular supply asso-
ciation, the credit society invariably takes its place and acts
as the commercial center so as to attract members from the
better classes by their conveniences and cheap prices for
agricultural necessities. In addition to material objects the
societies are active in taking care of the general welfare of
their members, and some of them have founded libraries,
literary clubs, kindergartens, schools and fire brigades, and
attend to the sick and the burial of the dead.

The salaries of ofBcers, if any are paid at all, are very
small. Half a dollar or a dollar as attendance fee is the
usual sum. The chairmanship of the committee of manage-
ment is the most important oflBce and effort is made to get
the most prominent man in the village to take this honorary
position. The secretary is sometimes the village school
teacher, a local public official or a clerk familiar with keeping
accounts. The customary salary for this officer is $75 to $200
a year in a society with 80 to 120 members. The office of
the local society is generally at his home, and the popular
time for transacting business is Sunday after church or in
the evenings of holidays. A strong box, a desk, a few chairs
and stationery, amounting in value to a couple hundred of
dollars, are all the office fitstures and supplies needed for a
rural cooperative society.

The credit extended by a local society is expected to be-
used for some productive or provident purpose and this pur-
pose is entered on the minutes by the committee when the
application is granted. But the larger societies do not watch
the use closely after once being satisfied with ithe security
given by the borrower. The local societies do not make a
practice of according real-estate credit. Nevertheless they
have over $70,000,000 of mortgages on hand, which were

318 EUEAL CEEDITS

mostly taken on loans granted to members to buy off prior
encumbrances bearing higb interest rates or for buying out
coheirs, as security for the purchase price of farms sold to
members by the society itself, or to protect its claims and
the property of the borrowing members from outside cred-
itors. The mortgages rim five or ten years, and are repaya-
ble ia yearly instalments.

The bulk of the loan business of the local credit societies
is usually done on promissory notes or by extending credit
on current accounts. Security is always required, the- pre-
vailing form being the indorsement of two or more sureties.
These loans as a rule run from one year up to six years
and are repayable in annual or semi-annual instalments. On
current accounts the debtor has to pay back a certain per-
centage of the overdraft within similar intervals. All socie-
ties retain the right of recalling credit upon four weeks'
notice.

The funds for carrying on business come from the en-
trance fees, capital, reserves, deposits, and money borrowed
from the regional or union banks or outside lenders upon
the collective liability of the members. The entrance fees
are rarely over a dollar. In associations having share cap-
ital the individual shares range from a quarter of a dollar
up to $1,000 in the large and old-established societies, but
the actual paid-up amount in the Imperial Federation is only
about $5 per share, since the societies are content to let mem-
bers keep the cash because they can draw on their liability
at any time to raise necessary funds in case of losses or
unexpected needs. The deposits comprise the greatest por-
tion of the working funds, and the societies pay as high in-
•terest on deposits as possible in order to attract them from
the savings banks and other moneyed institutions in
the neighborhood. Good rates can be easily given because
the profits of the local credit societies are not consumed
in paying large dividends or salaries, while they have the
safest kind of investment for funds and can put them to as
profitable uses as can any other lenders. Their dividends
never exceed three or at the most four per cent, and the cost

GEEMAK SYSTEMS AT PEESENT 319

of their maaiagement rarely goes over $100 or $150 a year
each.

The statistics of 1911, coveriag 95 per cent of all rural
cooperative credit associations registered under the law, show
the strong position and the enormous amount of business done
by these little local units. Accordirig to these figures the
aggregate of the funds owned by the credit associations was
$23,358,374, or $1,545 per society and $15.12 per member.
Of this aggregate $7,652,204 was paid-up capital on shares,
or $518 per society and $5.04 per member; and $15,710,769
reserves, or $1,060 per society and $11.04 per member.

The total amount of funds not their own in the posses-
sion of these societies (for 14,729 societies only) was $543,-
_701,409. Of this amount $443,899,656 was deposits, $52,154,-
124 was in current accounts, and the rest probably borrowed
money. The deposits averaged $30,134 per society and
$307.44 per member.

The total assets were $572,968,588 or $38,740 per society,
for the same number of societies. The total liabilities were
$569,558,596, or $38,668 per society.

The loans and overdrafts outstanding at the end of the
year amounted to $446,565,926 (for 14,729 societies only),
or $30,316 per society and $308 per member.

The loans and advances on current accounts made to mem-
bers during the year reached $247,837,766 (for 13,565 socie-
ties only), or $18,264 per society and $188 per member. Ee-
payments made by borrowing members were $215,790,436, or
$15,907 per society, and $163 per member.

The deposits made during the year were $137,996,121, or
$6,512 per society and $102 per depositor for the same num-
ber of banks.

Five per cent of the rural credit societies are omitted
from these statistics, neither do they include any of the peo-
ple's banks allied to the national or Schulze-Delitzsch Fed-
eration. Over 29 per cent of the members of the 952 banks,
in this Federation ia 1911 were farmers or persons engaged
in agricultural pursuits ; and their savings, earnings and busi-
ness represent perhaps a corresponding portion of the $397,-

'320 EUEAL CEEDITS

418,550 of worHng funds and $1,107,209,999 of transactions
during that year. All these would have to be added to show
the true and complete state of affairs. The annual turnover
of the banks of the Sehnlze-Delitzseh Federation is very much
greater than that of the banks in the Imperial and Greneral
Federations. This is owing to the fact that most of the
business of the city banks is done on three-months' paper,
while that of the rural credit societies is done on relatively
long-time loans or advances.

CHAPTEE XXIV
'AGEiCULTUEAIi CREDIT IN FRANCE

Early Cooperative Movement in France. — Credit Agricole Mutuel. —
History of Society. — SociSt6 du Credit Agricole. — Its Failure
Due to Method of Organization. — Further Attempts.— Laws of
1867 and 1884. — ^Associations and Cornices. — Syndicats Profes-
sionels. — Syndieal Banks and Connection with Bank of France. —
Organization and Operation of Banks of the System. — Govern-
ment Loans.

CooPEEATrvD credit for farmers was agitated in France
before it was put in practice in any other country. All the
earliest French Utopians and conxmunists, realizing that agri-
culture was the greatest source of wealth, suggested ways and
means of supplying it with funds or credit based on asso-
ciated action. Fourier devised for his phalanxes rural count-
ing houses for advancing money to farmers on their crops.
Vidal and Pecqueur proposed that the loan of 30 million
dollars which they wished the state to make to agriculture
should be allotted among associations of farmers. Louis
Blanc wanted the farmers in his colonies to be iinanced by
warehouses in which they were to be required to store their
produce, while Proudhon proposed to have the notes which
his Bank of Exchange was to issue on the security of stored
produce to be guaranteed by all its adherents. These vagarious
schemes were not cooperative, properly speaking, but they
were inspired by, if they did not create, the spirit of mutu-
ality which subsequently became a dominant feature of the
industrial and agricultural life of France.

This spirit began to manifest itself in the early part
of the last century, and the financing of the working classes
who attempted to combine for their mutual protection and

321

323 EUEAL CEEDITS

assistance was the first project considered. The Provident
Aid Bank was founded at Limoges in 1830, the Fraternal
Bank for Small Commerce at Cognac in 1848, the Bonnard
Exchange Bank of Marseilles in 1849, and the Mutual Com-
mercial Exchange Bank by grape growers at Montreuil and
Vincennes in 1857. The latter institution is called the mother
of cooperative credit in France and it served as a model for
many others within a few years after its foundation. Beluze
started mutual banks for laborers in Paris in 1863. In 1866
there were over 60 of these banks at Paris and in the depart-
ments, when Napoleon III founded the Bank for Coopera-
tive Associations with a capital of $100,000. Leon Say
(Minister of Finance, 1872-1882) also founded a bank for
cooperatives at Paris, while others were started at Lyon, Lille,
Mulhouse, Strasbourg, Colmar, Saint-Etienne and Marseilles.
These banks were in the cities and nearly all of them had
disappeared by 1869. Ludovic de Besse, a Capuchin monk,
took up the work again in 1878 and by 1886 he had formed
18 banks which he designed primarily for Catholics, but he
gloried in having some Jews among them. In 1885 Louis
Milcent, with the assistance of Paul Bouvet, a wealthy timber
merchant, founded at Poligny, in the assembly district of
Jura, a cooperative bank composed entirely of farmers. By
1887 an active movement for cooperative credit was launched
under the leadership of Father Ludovic and Eugene Eostand,
father of the dramatic poet, joined later by Charles Eayneri,
who sent invitations to 20 known societies for a convention
held in 1889. About this time also Jules Meline, who has
been President of the Chamber of Deputies, Minister of
Agriculture, Chairman of the National Council and Prime
Minister, began to interest himself in the propagation of co-
operative credit. In 1890 Louis Durand, a lawyer at Lyon,
was delegated by the Northeastern Union of Agricultural
Associations to make an investigation of farm finance; his
remarkable book, Credit agricole en France et a I'Etranger,
was published in 1891. In 1893 Durand founded two credit
societies. The first of these, started in March at Lange with
the help of the Abbot Eagu, was the first society of the

AGEICULTTJEAL CEEDIT IN FRANCE 3^3

Eaiffeisen type to appear in France. The other, composed
of workmen, was started in April at Bagneres de Bigorre
with the help of Mr. Soule and.Dussert. Durand immedi-
ately organized these two credit societies into the Federation
of Farmers' and Workmen's Banks with Unlimited Liability.
In July of the same year Charles Eayneri formed a society of
the EaifEeisen type at Castellar through the Central Federa-
tion of People's Credit which he had organized a few months
before. In 1894 a law for rural cooperative banks was
placed on the statute book, and by subsequent legislation most
of the banks which have been formed under this law have
been induced to join the Credit Agricole Mutuel, which is a
decentralized system of local and regional cooperative banks,
at present fostered by the state, for granting short- and long-
term credit both to individual farmers and to agricultural
cooperative associations.

The Central Federation of People's Credit and the Fed-
eration of Farmers' and Workmen's Banks with Unliroited
Liability stiU exist. The former is neutral as regards politics
and religion. The local banks affiliated with it comprise those
connected with the People's Bank of Menton, managed by Mr.
Eayneri, and those which were formed after the ideas of Mr.
Eostand. They depend principally on the savings banks of
their neighborhoods for obtaining money to lend to members
but sometimes resort to the state for aid. The Federation of
Farmers' and Workmen's Banks is almost exclusively Cath-
olic. A few of its local banks are connected with regional
banks which receive aid from the state but the majority
depend on their own resources or on regional banks which
they themselves have created. The total number of banks
belonging to these two federations is estimated at between
800 and 1,100, but their members are largely workmen in
the cities.

The Credit Agricole Mutuel, on the other hand, is entirely
agricultural, and it embraces all the agricultural cooperative
banks in France outside of these two federations except 131,
128 of which have 8,612 members. In 1912 the Credit Agri-
cole Mutuel comprised 98 state-aided regional banks and

334 ETJEAL CEEDITS

4,204 local banks or credit societies with 215,695 farmer
members. A Bureau of Supervision and Control has been
established in the Miaistry of Agriculture for the banks which
receive aid from the state, all of which are aflBliated to the
Central Federation of Agricultural Syndicates of rrance.
This body, established for propaganda and organization work,
keeps all the regional banks in communication with each
other. It publishes a semi-monthly bulletin with statistics
of the funds that are idle or needed in each bank, interest
rates and other useful information, and encourages mutuality
and interdependence in the system.

The Credit Agricole Mutuel, founded about 15 years ago,
now covers the entire country. There is at least one regional
bank in each of the 86 states and the territory of Belfort into
which Prance is divided. Attached to each regional bank
are on an average 42 local banks or credit societies with about
50 members each, whose territory as a rule is confined to a
parish or a commune. This vast system, which it is hoped
through its decentralization eventually will bring credit facil-
ities to the very doors of all the French farmers, sprang
from the movement set on foot by the inquiries propounded
in 1826 by the rich banker Casimir Perier, who subsequently
became Minister of the Interior. The first result of this
movement was the enactment of the law and the establish-
ment in 1852 of the Credit Foneier for land credit, as re-
lated in an earlier chapter. But it was soon realized that
the organization of land credit was bringing no relief to
small farmers and that something else had to be done in
order to rescue them from the usurious bondage iato which
they had fallen. The reports made by Charles Edward Eoyer
in 1844 and Jean-Baptiste Josseau in 1851, at the instance
of the Minister of Agriculture, showed that the various coun-
tries they had visited contained banks for granting short-
term credit as well as banks for long-term credit for agri-
cultural purposes, and the Government again undertook the
study of the unsolved problem. In 1854 Napoleon III dele-
gated Leonce de Lavergne to investigate the credit institu-
tions of Great Britain and the work of Schulze-Delitzsch and

AGEICULTUEAL CEBDIT IK FRANCE 325

Eaiffeisen, whose fame though still new was beginning to
spread over the borders of Germany. Consular agents also
were instructed to make researches in other parts of Europe.

In 1860 a large commission with M. Josseau as secretary
was oflBeially assembled to examine the material which had
been gathered and to make recommendations. It ignored
cooperation and advised the creation of a large central insti-
tution with the aid of the state. A law was accordingly
enacted in that year by virtue of which the Societe du Credit
Agxicole was organized in 1861. The Credit Foncier was
compelled to supply the $4,000,000 of capital, and its presi-
dent and vice-presidents to act as the officers of this ill-
starred concern, long since dissolved. The Government
pledged itself to advance a maximum of $80,000 annually in
case profits should not suffice to pay expenses and a dividend
of four per cent a year. The objects of the Societe du Credit
Agricole were to extend credit to agriculture and allied indus-
tries, but no restrictions were imposed against dealing with
any class of persons, and it was empowered to discount pa-
per, to make loans on real or personal security, and to issue
five-year debentures of $25 or more against its loans.

In 1870 this great agricultural bank had 500 correspond-
ents whose business with it amounted to $83,619,000; 17
branches with $143,121,800 of discounts; and two subsidiary
companies, one of which had a capital of $1,200,000, and
the other assets of over $6,000,000. The capital of the cen-
tral concern was then $8,000,000, its deposits $1,053,400,
accounts current $698,000, secured loans $13,579,200, and
discounts $247,778,800, while its debentures in circulation ex-
ceeded $18,000,000. But this splendid showing meant very
little to agriculture. The farmers could not be induced to
deal with it, and owing to the lack of their business, the
bank began to engage in speculative enterprises. Among
these was the Egyptian affair. By 1876 it had lent to the
Government of the Khedive $33,649,265. This money was
obtained from the Credit Foncier, which in making the ad-
vance impaired its capital and exhausted its disposable funds
raised by the sale of debentures. The security was Suez

336 RUEAL CEEDITS

Canal stock and Egyptian obligations of various kinds. In
1876 the Khedive suspended payment and the Soeiete du
Credit Agricole immediately went to pieces. The Credit
Fonder was badly involved in the ruin, but by carefully
nursing the assets which were left, it finally wound up the
affairs of the bank in 1881 at a net loss of $1,400,000. From
the point of view of agriculture, the Sqciete du Credit Agri-
cole was doomed from the start because it was an attempt
to organize credit by beginning at the top. Such efforts gen-
erally have ended in disaster or brought unsatisfactory results.
As soon as the plan of a central institution began to prove
a failure, the Government in 1863 resumed the study of
short-term agricultural credit with renewed energy, and in
1866 appointed a second commission to reexamine the many
projects before it, which kept it at work until the Franco-
Prussian war in 1870. The question was taken up again
after the restoration of peace and became one of the most
important public issues, because the farmers by that time
had become so burdened with debt or stagnated from the lack
of capital that agriculture was retrograding to the danger of
the country's welfare. In 1878 an International Congress on
Agriculture was held in the Trocadero in Paris under the
auspices of some of the most notable persons in France and
other countries. In 1879 a third commission was appointed
and another inquiry abroad made through consular agents,
while experts investigated conditions at home. This inquiry
resulted in 1881 in recommendations for the amendment of
the laws relating to pledges, chattel mortgages, commercial
paper and bankruptcy, with the object of eliminating the
technicalities which prevented the banks and money lenders
from taking the security or discounting the notes and biUs
of farmers. Debates in the Assembly on these subjects con-
tinued until 1898, when a law was enacted which, with
amendments in 1906, enabled a farmer to give as security
for a loan a mortgage on his live stock, chattels and personal
belongings, whether they were left in his own buildings or
on his own land or in the possession of a trustee or of any
association of which he might be a member. This right, up

AGEICULTUEAL CEEDIT IN FEANCB 327

to that time denied to fanners, placed tkem on a footing of
equality with merchants and industrial persons as borrow-
ers in financial circles and brought about what the French
call the "commercialization of agriculture."

The law of 1860, mentioned above, was the first attempt
made in Prance to solve the problem of short-term credit
for farmers. Its basic idea was the creation of a large cen-
tral bank under the auspices of the state with the aid of
public funds. The Credit Fonder, to which the Societe du
Credit Agricole was annexed, is, it will be remembered, a
semi-governmental institution. The farmers were not called
upon to contribute anything towards the support of this bank,
nor were they given any part in its organization or manage-
ment. They were expected only to be the customers for the
easy credit that it was intended to accord. The disastrous
but natural failure of the first state agricultural bank, how-
ever, did not swerve the Government from its policy, mani-
fested as far back as 1848, and now successfully accomplished,
as will be seen later, of extending public aid to farmers, but
it put an end to all plans for the formation of a centralized
system of agricultural credit to which the farmers were to
be connected simply as beneficiaries.

The miserable collapse of the Societe du Credit Agricole
was the best lesson France and Europe ever received in agri-
cultural credit, and while it was slow to be appreciated, the
effect of the lesson has been all the more permanent and use-
ful. Since then decentralization has been recognized as the
true principle, and the systems since formed for independent
farmers capable of taking care of themselves have been con-
structed on the idea of building up from the ground, arid cre-
ating credit facilities at the very doors of the farm homes.
This idea of decentralization had strong advocates from the
beginning in France, but its reduction to practice was finally
hastened by two other laws which were enacted without any
bearing on farm credits and even without any thought that
they would influence the solution of that problem. Yet by
opening the way for private initiative and associated action,
they led to the introduction of cooperation for all agricul-

328 KUEAL CEEDITS

tural purposes, credit included, and gave to it the special
feature of syndicalism along the lines of which cooperative
credit subsequently developed in France

A brief reference to history is necessary in order to ex-
plain the purpose of placing on the statute books these
two laws, one of which was enacted in 1867 and the other in
1884. In 1791 the revolutionists, being socialistic in tendency
and also in constant dread of political conspiracies, considered
all associations and corporations to be inimical to the con-
stitution and declared that none should exist or be formed
except by special act. "'No citizen of the same civic state
or profession," they enacted, "nor builders, tradespeople, la-
borers or persons of any mystery or art whatsoever, shall
when assembled elect presidents, secretaries or treasurers, keep
records, pass resolutions, or adopt by-laws in reference to their
pretended common interests." The penal code compiled
under Napoleon Bonaparte in 1810 retained the substance of
this law of the First Eepublic, but so amended it as to read :
"No association of more than 20 persons aiming to meet
every day or at stated intervals for religious, literary, po-
litical or other objects, shall be formed except with consent
of the Government and upon conditions imposed by public
authority." The law of 1834, enacted on the return of the
Bourbons, retained this provision and added that the con-
sent of the Government was always revocable.

This restriction prevented all freedom of action. The
only way in which a company or association could be formed
was to procure a license under a special act or decree. This
was usually a lengthy and expensive procedure, while the
license was uncertain in its duration even after it had been
obtained. Such conditions blocked industrial progress and
also made it impossible to form with ease the little societies
so necessary for the full play of cooperation. Consequently
urgent demands for modernization came from all sides and
could not be denied. The law of 1867 abrogated the restric-
tion so far as it related to companies and substituted a general
law whereby they are allowed to be formed by any number
of persons simply by the filing of articles of agreement and

AGEICTJLTUEAL CEEDIT IN FEANCB 329

complying with specified regiilations. This law further pro-
Tided that the capital stock of such companies may be made
"susceptible of increase by successive payments of sharehold-
ers or by the admission of new shareholders, or of diminish-
ment by the withdrawal in whole or in part of their shares."
This provision was inserted on the request of followers of
Schulze-Delitzseh, and it was the first time that cooperation
was given a legal status in Prance. But the only kind of a
cooperative society allowed thereunder was one with shares
of a minimum value of 50 francs ($10). Thus the statutory
recognition was not complete, since the EaifEeisen type of
society was excluded, but it was enough for the starting of
propaganda, and earnest men who were familiar vnth what
was being done in Germany and across the Alps in upper
Italy by Luigi Luzzatti began gradually to prepare the
French farmers for the reception of cooperation. In 1893
the minimum for shares was altogether abolished and thus
the way was opened for Eaiffeisenism.

The second piece of legislation, the law of 1884, applies
to associations. It provides that 20 or more persons of the
same trade or calling, or trades and callings connected there-
with, may freely form an association without being required
to obtain a special act or license but simply by filing their
articles of agreement with names of the first members and
officers with the mayor of the place where it is to be located
and with the prefect of the Seine at Paris. The objects of
an association imder this law are confitned to the study, pro-
tection and promotion of the common economic interests of
members, be they industrial, commercial or agricultural.
Such an association is empowered also freely to combine with
other associations of the same kind and purposes. The law
■was intended primarily for trade, commerce and the working
classes, whose representatives were chiefly instrumental in
securing its passage. The word "agricultural" was inserted
as an afterthought just before the last reading to round out
the sentence, according to tradition.

But contrary to all expectations this law became useful
mainly for agriculture and effected the salvation of the

330 EUEAL CREDITS

small farmers. It happened to be enacted at the height of
the agricultural crisis which had been precipitated over all
Europe by the long continued neglect of agriculture and the
competition of American with domestic grown products pro-
moted by cheap oversea transportation. The only hope of
the Prench farmers lay in combining their forces, so that
they could buy their supplies at wholesale prices, improve
their methods of cultivation by the interchange of useful
information, and secure by their united vote tariff laws and
other legislation favorable to their interests ; and they imme-
diately set about organizing themselves for mutual self-help.
Within a year 39 associations were formed under this law
and the number grew thereafter as if by magic. Ten years
after its enactment there were 1,888 associations with 403,261
members, and in 1911 there were 5,058 associations with
778,189 members, and 555 unions with 2,392 adhering asso-
ciations.

The associations which came into existence by virtue of
the law of 1884 must not be confused vrith the many agri-
cultural societies, one of which, created by the state of
Bretagne for the district of lUe-et-Vilaine, dates back to 1756 ;
nor with the cornices, or agricultural committees, which,
appearing first around 1830 and subsequently regulated by
the law of 1851, now number over 1,200. The agricultural
societies and cornices are agronomic groups of men united
for holding fairs, awarding prizes and advancing the agri-
cultural interest of their localities. Nor must the farmers'
associations be confused vrith the syndical associations which
may be voluntarily formed, or compelled by the state to be
formed, by landowners to undertake works of common utility,
such as the reclamation of land by drainage, irrigation, etc.

The associations formed imder the law of 1884 are
called in French syndicats professionels, the last word signi-
fying a trade as well as a profession, vocation or calling.
The difference between an association and a syndicat in
France is that the former has merely a conventional form,
while the latter has a statutory form and is an association
organized under some law containing the regulations respect-

AGEICULTUEAL CEEDIT IN FRANCE 331

ing its powers and privileges. French agrieultural syndicats
are counterparts of some of the unions of the agricultural
cooperative systems of Germany. A trade union is called a
syndicat in France.

The law of 1884 was not drafted especially for coopera-
tion. It was designed for all kinds of associations having
no object of gain, and its evident intent is that they should
not have any financial or business affairs. But it contained
loopholes. The clauses allowing such associations to promote
the economic interests of members and also to make invest-
ments of fees and contributions received from them were
taken advantage of to favor agricultural cooperation, and
consequently there are now agricultural syndicats which act
as agents for making collective purchases and sales for mem-
bers, which buy for and sell to members collectively or indi-
vidually the supplies they need, which own warehouses for
the storage and marketing of members' products, which carry
on a retail trade with the public in products bought from
members, which publish periodicals, and which do- various
other things of a commercial and industrial nature, distrib-
uting the profits, if any, as rebates to members or keeping
or using them for their common good. These broad con-
structions of the law have given rise to much litigation. The
court at Nancy denied to agricultural syndicats the rights
of cooperative societies, but a new law enacted in 1901 cleared
off certain legal difficidties, and under this law about 100
syndicats have been formed.

The circular of M. Waldeck-Eosseau, Minister of the
Interior, setting forth the views of the administration on
the 1884 law at the time of its passage said:

The legislature, imbued with the idea that the association of
individuals according to their professional or vocational affinities
is less an arm of combat than an instrument of moral, intellec-
tual and material progress, has given to the syndicats a civil
and legal personality in order to permit them to use their power
to the highest degree for doing good. Owing to this complete
freedom of action on the one hand, and legal civil personality
on the other hand, the syndicats are able to unite the necessary

332 RUEAL CREDITS

resources for creating and multiplying among other persons
useful institutions for help in ease of need, libraries, lecture
courses and bureaus of information for statistics, investments
and. salaries, and mutual credit banks and cooperative societies.

The first syndicat worked along the lines laid down in this
circular. Scarcely a month after the law of 1884 went into
effect, an agricultural syndicat was formed for Poligny, and
in the following year it founded for the farmers affiliated
with it, through M. Milcent, the bank mentioned above, with
shares and a variable capital under the law of 1867. Tliis
is known as the first rural cooperative bank in France, al-
though a syndicat founded by Professor Tanviraz at Blois
in 1883 attempted credit in an elementary way. Another was
formed shortly afterwards at Senlis, and the syndicate thence-
forth became active in giving a cooperative direction to agri-
cultural credit.

Thus agricultural cooperative credit made its appearance
in France through the syndicats, and in order to encourage
its progress M. Meline proposed that the 1884 law be so
amended as to enable syndicats to be organized for extending
credit directly. This was opposed by persons who wished
another central agricultural bank to be organized and guar-
anteed by the state. France has ever clung to its idea of
helping the farmer financially. It was also opposed by those
who still wished the syndicats to remain merely the agents
or instruments for creating, directing and advising coopera-
tive societies without necessarily being cooperative or engag-
ing in business affairs themselves. After four years of debate
in the Assembly, the central-bank idea was discarded and the
law of 1894 was adopted which has forever given a syndical
cast and character to agricultural cooperativie credit in
France.

This law, enacted through the influence of MM. Meline
and Albert Viger, the latter several times Minister of Agricul-
ture, is the true charter of agricultural cooperative credit in
France. According to its provisions the cooperative credit
societies have been made adjuncts of the syndicats, that is,

AGRICtTLTUEAL CEEDIT IN FRANCE 333

they may be formed only by all or a part of the members of
one or more than one agricultural professional syndicat, and
only for tlie purpose of facilitating and guaranteeing opera-
tions relating to agriculture carried on by such syndicat or
syndicats or members. By a law of January 14, 1908, how-
ever, members of agricultural mutual insurance associations
were empowered to form credit societies.

The first syndicdl banks or credit societies for agricul-
tural credit which appeared under the 1894 law were those
founded by Jean-Baptiste Josseau at Coulommiers and by
Emile Duport under the auspices of the syndicat of Belle-
sur-Saone. In order to hasten the movement, Eugene Eos-
tand, president of the Savings Bank des Bouches-du-Eh6ne,
with the assistance of M. Guillaumont obtained the passage
of a law in 1895 authorizing all savings banks, xmder certain
conditions, to invest the entire revenues from their capital
stocks and one-fifth of these funds in loans to agricultural co-
operative societies or in discountiug their paper. Within two
years thereafter there were 75 banks operating under the 1894
law, and at least one hundred imder the 1867 law, while
448,495 farmers were combined in 1,499 syndicats organized
xmder the 1884 law, mainly for making collective purchases of
fertilizer and feed. All this good work was done practically
within 13 years on the private initiative of the farmers them-
selves. But the progress was not rapid enough to satisfy the
cooperative enthusiasts, particularly in the matter of credit.
Without taking the farmers into their councils or considering
the gravity of the step, they decided to appeal to the state
for assistance, to hasten the realization of their ambitions for
cooperation.

The opportunity came with the debate on the renewal of
the privileges of the Bank of France. This great national
institution was founded in 1803, placed imder the control
of the state, and given a monopoly of issuing notes payable
at sight to bearer. ' Its primary objects were to assist industry
and commerce and to take care of the financial needs of the
state, but from an early date it had upon its own initiative
placed its services at the disposal of agriculture. It had

334 EUEAL CEEDITS

helped the agricultural syndicats to form credit societies
and also had supplied iadividual fanners directly with funds
for fattening cattle for the market. The loans for this pur-
pose made between 1867 and 1880 through the various
branches of the Bank totaled over $38,000,000. As the
profits were $5,000,000 and no losses had been suffered, the
Bank considered that farmers were safe and profitable cus-
tomers and gradually extended its business with them. It
had, in fact, become the greatest single factor in agricul-
tural finance and it was putting itself in the way of gaining
continuing and handsome profits therefrom. Consequently,
leaders in the Assembly thought that the Bank of France
should be compelled to pay tribute to agriculture, and they
planned to bring this about upon the renewal of its note-issu-
ing privilege, which was to expire in 1897. The socialists
proposed either that $12,000,000 of the reserves of the Bank
of France should be appropriated for creating a central agri-
cultural bank, or else that the Bank of Fraaice should turn
over to the state $100,000,000 to be lent at low interest
rates to farmers. These projects were championed by strong
men. But the disaster which overtook the first central agri-
cultural bank in 1876 was still fresh in memory. More-
over, many realized that the discount rates of the Bank of
France would probably have to be raised if a large portion
of its ready cash were tied up for the length of time re-
quired for agricultural loans, and saner views at last pre-
vailed.

Accordingly, on October 31, 1896, the Bank of France in
consideration of having its privileges renewed until the end
of 1930 agreed to make a loan to the Government of 40,000,-
000 francs ($8,000,000) to run to that date without interest.
The law of November 17, 1897, ratifying this agreement
provided that the Bank of France should also pay annually to
the state during this entire period a royalty on its operations
so calculated that the amount for each year should never fall
below 3,000,000 francs, and that this money also should be
devoted to agricidture. The law further required the Bank
to discount the bills of exchange and negotiable instruments

AGEICULTUEAL CEEDIT IN FRANCE 335

Bubscribed or indorsed by agrieultuTal syndicats and all other
persons kaown to be solvent. The royalty was determined
at first by multiplying the productive circulation of the
Bank by one-eighth of its discount rate. By an amendment
to the law in effect December 20, 1912, provision was made
that when the rate of discount shall have been in excess of
four per cent during any given period, the percentage used for
calculating the royalty shall be raised for such period from
one-eighth to one-sixth. Between 1897 and 1913 the Bank
of France has advanced 250,000,000 francs to agriciiltural co-
operative banks and 576,000,000 francs to farmers directly,
which, added to the loan and royalties paid to the state,
make a total of one billion of francs or about $200,000,000
in 15 years for the use of agriculture.

At the time the privilege of the Bank of France was
renewed, legislation was devised for the purpose of provid-
ing the machinery for distributing among the farmers the
loan and royalties which had been exacted from it. This
legislation, drafted by M. Jules Meline, was placed on the
statute books through the combined influence of himself and
Senator Albert Viger on March 31, 1899. The Meline law,
as it is called, has brought about the creation of the most
symmetrical system of agricultural cooperative banks and
credit societies existing in any country. While it is aided
and at present practically supported by the state, its avowed
purpose is to stimulate the private initiative of the farmers,
and when this temporary assistance has accomplished its
work and been finally withdrawn, France hopes to have a per-
fect machinery for financing agriculture.

The Meline law provides that regional agricultural coop-
erative banks shall be founded according to the regulations of
the law of 1894, with powers of assisting and facilitating
operations relating to agricultural production carried on by
members of the local cooperative credit societies within their
prescribed territories and guaranteed by such societies. The
regional banks are authorized to discount the negotiable in-
struments made by members of the local societies and in-
dorsed by such societies, and also to make loans to such

336 EIJEAL CREDITS

societies for working funds. The paper having thus three
signatures, those of the borrowing farmer, the local society
and the regional bank, is 'Tiankable" according to the com-
inercial and banking codes, and the regional banks may re-
discount it at the Bank of France or at any other of the
"big credit institutions in France provided the time is not
over nine months.

Although these regional banks were devised for the spe-
cial object of distributing to the farmers the money which
the state receives from the Bank of France, they are not
formed by the state. They are private, voluntary organiza-
iions, but if they desire to obtain state aid they must place
themselves under the control of the Government. This con-
trol is exercised by the Minister of Agriculture through the
bureau composed of public officials which is charged with
the distribution of the loan and royalties received from the
Bank of France. By a law of December 35, 1900, each
xegional bank may receive out of these funds a five-year
loan without interest equal to four times its paid-up capital.
By a law of December 29, 1906, one-third of the royalties
may be used for loans through the regional banks to coopera-
tive societies organized for the production, manufacture or
sale of agricultural products, or for carrying on any agri-
■cultural enterprise in common. But every such society must
be affiliated with a local credit society, and no loan may run
for longer than 25 years to be larger than twice its paid-up
capital. Finally, by a law of March 19, 1910, loans may be
made without interest and for 20 years to the regional banks
up to double the amount of their paid-up capital to be used
exclusively in helping farmers to acquire or improve small
homesteads. No loan to any individual' farmer may exceed
8,000 francs ($1,600) or run for longer than 15 years. It
must be repayable by instalments or annuities and be se-
cured either by a mortgage on the property or by an insur-
ance policy on the life of the borrower. Land-credit societies
created conformably to a law of April 10, 1908, also may
receive advances from the state for this purpose in the same
way as the regional banks.

AGEICULTUEAL CKEDIT , IN FEANCE 337

The first regional bank to be established was La Caisse
Eegionale de TEst, formed by Mr. M61ine on June 29, 1899,
less than three months after the law regarding such institu-
tions was placed on the statute book. In two years there
were seven. By 1904 the nimiber began to steadily increase
under the stimulation of free loans from the state, and then
it was that the Minister of Agriculture established a bureau
for their supervision and control. Now there exist practi-
cally all the regional banks that are needed. Thus the Gov-
ernment has accomplished within 15 years and by advancing-
large sums of money its long cherished object of having a
great agricultural credit system embracing the entire nation
and available for all farmers belonging to syndical associa-
tions or cooperative societies. At the base of this system,
called the "Credit Agricole Mutuel," are the local credit
societies. Above them and largely formed by them are the
regional banks, and over all of the latter which receive aid
from the state is the Bureau of Supervision and Control of
the Ministry of Agriculture, placing them in touch with the
Bank of France, while assisting this Bureau for propaganda
and organization work is the Central Federation of Agricul-
tural Syndicats of France. And this system is doing another
great work in addition to improving credit facilities for farm-
ers. It is gradually bringing all the agricultural coopera-
tive associations in France together in a solid league for
mutual self-help, since under the 1894 law as amended the
local credit societies may be formed only by members of syn-
dicats and of mutual societies. That is to say, the syndicats
form the credit societies as well as the associations for other
cooperative purposes, and the syndicats then form themselves
into unions which are united to the Central Federation.

The requirements provided by law for forming and oper-
ating these credit institutions are very simple. Before begin-
ning business articles of agreement must be made out in
duplicate, with lists of officers, directors and members show-
ing full names, vocations, residences and the number of shares
subscribed by each. One copy must be filed with the justice
of the peace of the canton in which the credit society intends

338 EUEAL CEEDITS

to have its headquarters. The other copy miist be filed with
the tribunal of commerce of the assembly district in which
the canton is situated. Before February 15 of each year
similar statements must be filed ia the same places with a
brief account of the receipts and expenditures as weU as of
the operations of the preceding year, which are open to ia-
spection by all who wish to see them. Officers are per-
sonally responsible for any damages resulting from violations
of the law and are subject to a fine not to exceed $100 for
any false entries in the articles of agreement. The articles
must designate the headquarters and the manner of conduct-
ing business, and show how the capital is to be formed and
the proportion that each member must contribute to it. The
capital may be formed only by subscriptions by persons who
are already members of some agricultural professional syri/-
dicat or agricultural cooperative insurance association.
Shares may be of equal or unequal value, but they must be
made out ia the name of the owner and cannot be transferred
except with the consent of the society and then only to
another member. Their size is usually $4 to $8, so that
the poorest farmers may join. No society may begin busi-
ness until at least one-fourth of the subscribed capital has
been paid up. In case the capital is variable it cannot be
reduced below the original amount named in the articles
of agreement. The articles must also specify the maximum
of deposits that may be received, and determine the liability
of members, which may be either limited or unlimited but in
every event must continue until all obligations contracted by
the society before their withdrawal have been settled.

The articles must define the methods to be used for the
distribution of profits. The surplus, after paying running
expenses and interest on deposits or on whatever loans have
been contracted, must be set aside each year up to at least
three-fourths for the creation of a reserve until such reserve
equals one-half of the capital. Dividends, in the strict legal
meaning of that term, may not be declared, but any balance
existing at the end of the year may be prorated among the
syndicais and among the members of the syndicats in the

AGEICULTUEAL CEEDIT IN PEANCE 339

form of rebates on their payments for transactions carried
on for them. On dissolution the reserves and other assets
shall be distributed among the members in proportion to the
amounts paid on their subscriptions, unless the articles pre-
scribe some other method of disposal for an agricultural
purpose. The credit societies are subject to the regulations
of the commercial code and must keep their accounts and
books according thereto, but they are exempt from certain
license taxes and stamp duties.

The powers of a local credit society thus formed are to
receive deposits with or without interest; to make short-
term loans for distinctly agricultural purposes; to accept or
discount agricultural paper; to rediscoimt such paper at a
regional bank; to make long-term loans out of moneys re-
ceived imder the law of March 19, 1910; to pay out and
collect money on account of their customers; to contract
loans necessary for creating or increasing their working
funds; and to invest their idle funds in government or mu-
nicipal bonds, in stock of the Bank of France or of railroads
guaranteed by the state, or in debentures of the Credit Pon-
der. The reserves may be kept at a regional bank or at a
public savings bank.

The supreme authority of a local credit society is lodged
in the members regularly assembled. Each member has as
many votes as he has shares and may vote them by proxy,
but usually the maximum of the votes of an individual mem-
ber is limited to four or five regardless of the number of
his shares. Each year the members elect two supervisors
to report on the condition of the society at the annual meet-
ing of the following year. They also £11 the vacancies in
the board of directors, one-third or one-fourth of whom are
retired each year. The board of directors elects the presi-
dent and vice-presidents and the secretary-treasurer. The
latter official and the managing director alone may receive
salaries. The board of directors must aU be members of the
society, and they manage its affairs always by a majority
vote.

The office of the society is ordinarily opened once a week.

340 EUEAL CEEDITS

usually on Sundays or market days. The rate of interest on
the long-time loans made with money received from the state
to enable farmers to buy or improve small homesteads is
determined by the Ministry of Agriculture. The rate on
short-term loans, however, depends on the condition of the
money market; at present it is about four per cent, and it is
always at least one per cent higher than the discount rate
of the regional banks. The law does not restrict the local
societies to lending to members only; they may lend to any
farmer who needs money for an agricultural purpose, but
only the paper of a member may be discounted at the re-
gional bank. They may lend also to agriciiltural syndicats,
agricultural mutual insurance societies and agricultural co-
operative associations organized for the purchase, manufac-
ture or sale of agricultural supplies and products. No limit
has been prescribed by law as to the size or length of the
short-term loans. In some of the societies the size is pro-
portioned to the sums paid up by the borrowing member on
his shares, and may not exceed 10, 15 or 30 times that
amount; in others the maximum is fixed between $200 and
$400, but in every case the credit rests upon the character
of the borrower, and no person, no matter how well-to-do,
can get a loan unless his reputation for industry and honesty
is good. The loans generally run for three months, with
right to one, two or three renewals.

The loans are made on promissory notes, bills of ex-
change or some form of negotiable instrument, and an in-
dorsement by a responsible party or security in the way of
collateral or chattel mortgage is always required. The
4,204 local credit societies of the Credit Agricole Mutuel in
1912 had altogether 215,695 members. The subscribed cap-
ital was $4,101,586, of which $2,704,310 had been paid up.
The reserves were $566,393, and the short-term loans out-
standing at the end of the year amounted to $12,964,531.
The outstanding long-term loans to cooperative societies
under the 1906 law amounted to $517,575, while the out-
standing long-term loans to farmers on their homesteads
under the 1910 law amounted to $1,544,399. Nearly 2,050

AGEICULTIJEAL CEEDIT IN FEANCE 341

farmers have so far taken advantage of this lav, and the
average loan received from the state was $745 for each in-
dividual.

The local banks so organized out of the syndicats and
insurance societies are thus the base of the system. There is
no restriction as to the number which may exist in any given
territory. They do not receive any direct aid from the state,
which is granted only to the regional banks. As soon as
the board of directors of a local credit society is elected, it
proceeds to the selection of the ofiBcers. The president there-
upon requests affliation of the new bank with the regional
bank of its department and delivers to it a copy of its by-
laws and a list of members, officers and supervisors. In
order to effect mutuality between the two, the local bank
should subscribe to some shares of the regional bank. The
number is not prescribed and varies vrith its available re-
sources.

The regional banks are similar in organization and ad-
ministration to the local credit societies, since both must
be formed under the 1894 law, but by a provision of the
1899 law the articles of agreement of a regional bank must
define the area of its operation and specify the amount of
its capital and number of its shares, two-thirds of which at
least must be offered to local credit societies for subscription.
Dividends may not exceed five per cent per year. A regional
bank when thus duly formed may discount the negotiable
instruments of members of local credit societies within its
territory upon the indorsement of such societies; and it is
authorized also to make loans to such societies; out of the
funds received from the state to make advances to such so-
cieties for them in their turn to lend at long term for creat-
ing or improving small homesteads according to the 1910
law; to receive deposits; to issue notes up to an amount not
exceeding three-fourths of the value of the securities which
it has on hand; to rediscount aU its bankable paper; to
invest its idle funds in the same way as a local credit society
and to receive money from the state for lending at long term to
cooperative societies according to the 1906 law; and it is

343 EUEAL CREDITS

especially charged with the supervision of the local credit
societies aflSliated ■with it.

All regional banks which receive money from the state
are subject to the supervision of the Ministry of Agriculture
and must keep their books and accounts in accordance with
the rules and regulations prescribed. They must submit
financial statements to it four times a year and annually
they are examined by a government inspector. They cannot
affiliate with local credit societies organized on the unlimited-
liability plan because such concerns have no funds with which
to buy shares, nor are they permitted to do business with
any society which is not exclusively agricultural or which pays
to members as dividends more than five per cent a year on
its capital. The regional banks endeavor to be as large as
possible for the reason that the amount of the money they
may receive from the state depends upon the size of their
capital. In 1912 the 98 regional banks reeeiviag aid from
the state had a combined capital subscribed of $4,666,068,
of which $4,310,244 had been paid in, $2,782,039 having been
contributed by the local credit societies. The reserves were
$1,242,595. They had taken in $4,007,219 of deposits. The
total of their discounts and renewals for the year was $36,-
523,760, while the loans to the local credit societies for vari-
ous purposes outstanding at the end of the year amounted
to $12,677,602, and to agricultural syndicats, cooperative
associations and mutual insurance societies to $2,886,800.
The discount rate of only two of the banks was less than
that of the Bank of France. The general expenses of all these
regional banks amounted to only $102,406, showiug that they
are run economically and with comparatively little expense.

The total amount of the debt of this system of rural co-
operative banks to the state is now $17,177,745. This has
all come from the Bank of France. The law of 1899, enacted
for the distribution of the Bank's loan and royalties, had
at first in view only loans to individual farmers at short
term and provided that advances should be made to the
regional banks without interest for five years with renewals
if necessary for making loans to or discounting the paper of

AGEICIJLTUEAL CEBDIT IN FEANCE 343

members of the local credit societies. But the scope of the
system was gradually extended. In 1906 a law was passed
for organizing collective credit at long term whereby one-
third of the royalties of the Bank of France were set aside
to be loaned by the regional banks to agricidtural coopera-
tive societies for 25 years at two per cent per annum with
amortization. Finally, in 1910 long-term individual credit
for individuals was organized by a law whereby the regional
banks were required to use two-thirds of the royalties for
making 8,000-francs ($1,600) 15-year reducible loans to
farmers through the local credit societies for creatiag small
homesteads. Thus at present only the $8,000,000 loan from
the Bank of France is used for short-term loans, and by a
law of 1912 the Government has been authorized to take
$2,400,000 of this for long-term individual loans, to be reim-
bursed out of the royalties as they fall due. By a law of
1910 the Government may advance six times instead of four
times the amount of the capital of a regional bank in any
district where the grape growers have been afflicted with bad
crops.

The loan of $8,000,000 which the state received from the
Bank of France must be repaid in 1920. The royalties, which
in 1913 amounted to $17,860,720, make a total thus far of
$25,860,720 obtained from the bank. The royalties are in-
creasing yearly and there is a possibility that the state will
be able to repay the Bank at the appointed time, but it is
evident that the rural credit system is not yet self-sustaining
or in a position to meet its obligations to the state. The
question is being discussed how the system will take care of
itself when the assistance which was intended to be temporary
is finally withdrawn. During the first years the Government
did not demand any partial payments from the regional banks
on the renewals of their loans, but during recent years it
has exacted one-fifth of one per cent of the principal upon
renewal. In this way the regional banks are gradually ac-
customing themselves to looking elsewhere for working funds.

There are four natural sources from which these may be
drawn. The first is from deposits, but deposits are com-

344 KUEAL CREDITS

paratively small at present. The second is by the increase of
their share capital, but dividends would have to be allowed
and materially increased in order to bring this about. The
third is by loans from individuals or from the savings banks.
Many of the latter institutions are owned by municipalities
and all are subject to the control of the Government. Their
combined assets exceed $18,000,000, of which $5,000,000, say-
ing nothing of annual revenues, are available for agriculture
by the law of 1895, but very little of them have been used
yet for this purpose. The fourth is by short-term bonds of
the regional banks, provision for which was made by the
law of 1899. No bonds have yet been issued, but they might
be made an effective means of financing the agricultural
mutual credit system provided safeguards are thrown aroimd
their issue. Until deposits begin to be attracted in suffi-
cient volume for their transactions, the regional banks proba-
bly will depend upon the two latter sources after state aid
is withdrawn, although the plan of establishing a central
bank to take the place of the state is favored in many quar-
ters and even by the Government.

Nothing, however, has yet come to light to enable a fore-
cast to be made of the direction which future development
will take. Indeed the future is very uncertain. State aid
which has been so lavishly extended lq France has registered
a conspicuous failure when considered from the viewpoint
of the hopes entertained in 1899. Even its partisans are far
from satisfied with the progress made, and are now contem-
plating amendments to the laws in order to bring about vital
changes in the Credit Agricole Mutuel. To say nothing of
the dependence upon funds officially supplied, the intimate
relations between the system and the Government bind to-
gether the financial destinies of both. The occurrence of a
great war, for instance, which only served to prove the abso-
lute solidity of the self-reliant German system in 1870, might
imperil the very existence of this French state-aided system.
No one can foretell, of course, what will happen, but per-
haps, as the years roll on, larger numbers of members of the
Credit Agricole Mutuel will appreciate the value of the prin-

AGEICITLTUEAL CEEDIT IN FEANCE 345

ciples of seK-help maintained by the Federation of the
Farmers' and Workmen's Banks with Unlimited Liability
and, in a lesser degree, by the Central Federation, and then
the full meed of praise will be bestowed upon Eostand, Eay-
neri and especially upon Louis Durand, who for over a
generation have been fighting the good fight for mutual
self-help and pure cooperation.

CHAPTEE XXV

ITALY: LtrZZATTI AND WOLLEMBOEG

Luzzatti and His Cooperative Credit Bank. — Departures from the
Schulze-Delitzseh and Eaiffeisen Systems. — ^Legislation. — Man-
agement.— Business. — Wollemborg and Rural Credit Societies. —
National Federation of Rural Credit Societies. — Position of
the Church. — Success of the Associations. — Special Laws for
the South. — Government Aid. — Casse Ademprivili of Sardinia. —
Central Banks versus Local Organizations.

The honor of the establishment of cooperative credit in
Italy is due to Luigi Lnzzatti and Leone Wollemborg, two
illustrious Jews, whose unselfish work, begun early in life,
has been rendered doubly effective by the sympathy and sup-
port of the Catholic Church and the state. Both came from
wealthy families, were finely educated, had precocious abil-
ities as writers, orators and organizers, and have held high
positions in the civil government. Luzzatti has been several
times Minister of Finance, Minister of Agriculture, Com-
merce and Industry, and Prime Minister. Dr. Wollemborg
has served in Parliament and has been Minister of Fi-
nance.

These two men, powerful in banking circles and politics,
are famous throughout the cooperative world, the first for
having originated a new type of people's bank, and the second
for having implanted a system of rural credits which was
thought to be inadaptable to Italian conditions. When they
began their work, the laborers and farmers in many parts
of Italy were sunk in dull apathy because of rapacious usury
and had sullenly reconciled themselves to extortionate de-
mands of their landlords as well as the money lenders. Lit-
tle cash was available. Interest rates reached the highest

346

ITALY: LUZZATTI AND WOLiLEMBOKG 347

point on record and supplies were bought at ruinous prices.
As typical of the prevailing situation Sir Frederick A. Nich-
olson mentions the instance of a ring formed in Abario to
squeeze the last cent out of the impoverished population.
These usurers sold $10 worth of corn for $30 on three months'
time. This meant interest at the rate of 400 per cent, while
for. small loans the usurers exacted 1,200 per cent payable
in advance, besides commissions, with possibly dinner and
wine for the lender and broker.

Aroused by the sight of such wrongs practised even within
the precincts of the great savings banks and charitable lend-
ing institutions which abounded in Italy, Luzzatti in 1864,
then only 23 years of age, made a trip to Germany to study
cooperation. Fired by the teachings of Sehulze-Delitzsch, on
his return home he wrote a monograph, now classic, on the
diffusion of credit, and he continued to advance his ideas
on this subject in the University of Padua in which he had
been made a professor of political economy. But he shortly
deserted scholastic for political life, and soon began to make
a practical application of the principles which he had
evolved.

On May 25, 1866, Luzzatti opened at MUan the first
cooperative credit bank in Italy. Its capital was only $140,
of which he contributed $20, thus becoming the heaviest
shareholder. It employed no paid oflBcers or clerks, and
Luzzatti himself did all the work, receiving the fimds which
came in and attending to the loans while seated at a desk
on the sidewalk in front of its humble office, much to the
amusement of his rich friends, who were utterly unable to
understand the purpose of his course or to appreciate the
great possibilities which lay in the idea he had conceived.
To-day this People's Bank of Milan has grown to be one of
the largest moneyed institutions in Italy. It is lodged in a
palatial office building and has about 70 unpaid officers and
more than 100 paid clerks. In 1909 the number of its
members was 24,774. Its capital was $1,923,910, divided
into 192,391 shares, and back of this was a reserve of $961,-
955. Its deposits, savings and ordinary, were $32,729,874,

348 ETJKAL CEEDITS

and its turnover of business amounted to $535,693,455. Upon
this it realized a profit of $306,235, which enabled it to dis-
tribute a dividend at the rate of 7.20 per cent on the 50-lire
($10) share after paying its relatively small managerial ex-
penses, amounting to $92,444, taxes, etc., and setting aside
a liberal sum for charity.

Besides rising to this high eminence from its unpreten-
tious beginnings 48 years ago, the People's Bank of Milan
has served as a model for 735 similar banks, which had, in
1908, 501,032 members. Their capital and reserves amounted
to $31,132,800, and their deposits to $200,000,000, while
their total turnover exceeded $320,000,000. About $100,-
000,000 of the turnover represented loans to farmers. The
older of these banks belong to a federation organized by
Luzzatti in 1876 with headquarters at Eome, and most of
them are loosely grouped around nine of the largest banks.
The People's Bank of Milan does business with about 300 of
them. But they are not bound by contract or made subject
by law to inspection or audit by any higher supervising au-
thority, and hence do not constitute a system, properly
so-called.

The people's banks of Italy are likened to the Schulze-
Delitzsch banks of Germany, but although based on the
same general principles there are fundamental points of
difference between the two. When Luzzatti made his trip to
Germany in 1864, both Schulze-Delitzsch and Eaiffeisen were
preaching unlimited liability. Eealizing that such a plan
would not be acceptable to Italians, Luzzatti formed his
bank at Milan with limited liability. He did away also
with Schulze's large shares payable in small instalments run-
ning over long periods, and substituted in their stead shares
of 50 lire ($10) payable in ten instalments, thereby reducing
the intake of funds from this source. This feature forced his
bank to depend mainly on deposits for carrying on its op-
erations, and made the capital a guarantee rather than a
working fund, which is altogether different from the case
in Germany. Next Luzzatti discarded Schulze's idea of rea-
sonable salaries and compensation and required all officers of

ITALY: LUZZATTI AND WOLLBMBOEG 349

his bank to serve absolutely without pay. Finally he enlarged
the boards and committee and even created new ofiBces, and by
thus providing for a more numerous administration made
the management of his bank very democratic. This has
residted in keeping the bank and the members in closer
touch vrith one another, and also has enabled the bank to
attend to the needs of the poorer members with greater safety
and to give them more careful consideration than the German
banks have found practicable.

During the early years the people's banks of Italy en-
countered a serious difficulty in the lack of proper legisla-
tion. The essential feature of a cooperative society is a vari-
able capital, a capital susceptible of increase by successive
payments and the subscription of new shares by the mem-
bers or the admission of new members, and of decrease by
the withdrawal in whole or ia part of the amounts of the
shares. But the Italian laws as they then stood provided only
for fixed capital. The banks were compelled to form them-
selves accordingly, but they managed to assimie a coopera-
tive character by issuing new shares as occasion required and
then having these issues made legal at the end of the year
by voting an increase of the capital stock. This irregular
subterfuge was necessary until January 1, 1883, when a new
commercial code opened the way for true cooperation.

According to this code, as amended from time to time, co-
operative associations may be organized with or without share
capital, and may be based on either limited or imlimited lia-
bility, or liability limited as to some members and unlimited
as to others. They may be created by filing a sworn organiza-
tion certificate, which must show the conditions for the ad-
mission, withdrawal and retirement of members, and the
manner and times of payments on shares subscribed for. It
must show also the method of calling meetings of the mem-
bers and designate the newspaper to be used for publication
of notices, etc. If a society has unlimited liability, the offi-
cers must file at the tribunal of commerce every three months
a list of its members, showing all who were admitted and
retired during that period. Shares having a value of over

350 EUEAL CEEDITS

$20 cannot be issued. No one may hold more than $1,000
of shares, or belong to two or more credit societies at the
same time. Members axe responsible, according to the form
of liability assumed, for all obligations contracted by a so-
ciety up to the day of their retirement, and this liability lasts
two years.

Such are the main provisions of the code. Its object was
to bring cooperative associations under the common law and
to make each amenable to the rules prescribed for its form.
Hence there is very little difference between the legal status
of a cooperative concern and one formed for a purely lucra-
tive object. They may be organized for the same purposes,
have the same powers, and arrange by their by-laws all the
details of their organization and management subject to the
regulations of the code and other laws applying to both alike.
Cooperative societies are exempt from certain taxes and
stamp duties imder certain conditions, while savings banks
and mimicipalities may deposit their funds with credit asso-
ciations. These are the only privileges which they have been
granted.

The people's banks governed by this law have aU taken
the limited-liability form, and although there are consider-
able differences among them in detail they are organized and
managed along the same general lines. Since they are
strictly cooperative, only those features need be referred to
which distinguish the Italian from the German and French
types of society already described.

The model for by-laws prepared by the Luzzatti federa-
tion shows that the territory of operations is frequently so
extended that branches and agencies are established to cover
it. Shares rarely exceed $10 or entrance fees $5. The value
of the shares and the size of the entrance fee for new mem-
bers is determined each year and depends upou the amount
of paid-in capital and reserves, the larger and older banks
as a rule being the more expensive to join. Similarly, the
monthly instalment on shares and the number a member is
allowed to hold depend upon their value. In a rich and
prosperous bank the instalment may be fixed at two lire (40

ITALY: LUZZATTI AND WOLLEMBOEG 351

cents), and if the share is 50 lire the maximum for holdings
may he 3,500 lire ($500). The privilege of paying in
monthly instalments is allowed only to a person acquiring
but a single share. The character of an applicant for ad-
mission must be indorsed by two members.

The annual meetings of the members are held usually
in the middle of March. Special meetings may be called by
the proper officers or by one-tenth of the total number of
members. One-fifth of the total number constitute a
quorum. Officers cannot vote at these meetings on matters
relating to their official acts. Unless expressly permitted by
the by-laws, voting by proxy is barred.

The supreme body in the management is the board of
directors. In small banks their number is seven, and in the
larger 130 to 140. One-third of them are renewed each year.
The chairman of the board is the president of the bank.
One-half of the body constitutes a quorum, and meetings are
held fortnightly. The board may engage a manager and a
cashier who upon appointment must enroll as members. It
may delegate its powers to one or more of its members, but
generally when the board is numerous the bank has a com-
mittee of control of five. No relative of a director to the
fourth degree of consanguinity or affinity may be a controller.
To the committee of control is assigned the duty of auditing
and reporting on the annual balance sheet and exercising a
constant and effective supervision over the finances and ad-
ministration of the bank. Members of the committee take
weekly turns, and one of them must be in. attendance at the
bank each day.

The discount committee consists of at least five, and in
the larger banks of 15 to 40 members, who remain in office
for two years. They meet each week. Jointly with two or
more of the directors designated by the president, for passing
upon the applications for loans, and no loan may be granted
or bill discounted except with the approval of a majority.
One of the special duties of this committee is to prepare and
revise a register or card list showing the credit standing of
each member. If a borrower fails to perform his engage-

353 EUEAL CEBDITS

ments, or if his security depreciates ten per cent, or if his
own rating falls below the estimate on the register, the
credit extended to him is immediately recalled unless he can
make good the deficiency. As an adjunct to this committee
the larger banks have a committee on risks to keep watch on
all outstanding loans. There is also a committee on "honor"
loans to attend to members who are so poor that they cannot
furnish security or indorsers but seek credit on their char-
acter alone.

All banks have a committee of three arbitrators elected
for three years, whose duty is to decide cases carried to them
on appeal regarding the admission and expulsion of members
and the refusal of credit. Except in the matter of admitting
new members, they must act as friendly arbitrators and try
to assure every member equitable treatment at the bank.
Their decision is final unless set aside at a meeting of the
shareholders.

The business of the Italian people's banks embraces all
kinds of banking transactions. They may receive deposits
from outsiders and even extend credit to non-members who
are in need and worthy of their help. The larger banks all
have special funds for this benevolence. Eeal-estate mort-
gages are not favored and collateral and pledges of personal
property are avoided as much as possible. The indorsement
of one or two members is the preferred security, for the
"capitalization of honesty" has been Luzzatti's watchword
from the beginning. Cash credit is frequently practised, but
the acceptance and discounting of bills of exchange are the
modes of according credit generally used. Commercial bank-
ing, it will be remembered, originated in Italy, and the hum-
blest persons are familiar with banking paper and accus-
tomed to use all its various forms in their transactions.
Bills, notes and drafts for the smallest amounts pass through
the people's banks. The maturity is three months, with
privilege of renewal one or two times upon making partial
payments. The maximum ordinarily allowed farmers is one
year. Except in the case of farmers the loans are not re-
quired to be employed for a specific purpose. The banks

ITALY: LUZZATTI AND WOLLEMBOEG 353

have brought the interest rate on credit down to 7.5 per cent
and in many places to four per cent. Deposits draw three
to four per cent. Most banks set aside 25 to 30 per cent of
the annual profits for the reserves until these with the capital
give them a fair-sized working fund. The average dividend
on shares (1908) was 8.34 per cent.

The people's banks of Italy have not proved very success-
ful in helping poor persons without any resources of their
own. In fact they are not intended for this class any more
than are the Schulze-Delitzsch banks of Germany. Their
clientMe is composed mainly of small merchants, shop-keep-
ers, artisans such as tailors, boot-makers, etc., who work on
their own account, and all those whose reputation and sol-
vency are good yet have not sufScient business or standing
to obtain recognition at the commercial banks. According
to recent statistics, 70 per cent of their money is lent in sums
ranging from $40 to $1,000, 13.45 per cent in sums above
$1,000, and only 17.04 per cent in sums below $40. Nor
have the people's banks rendered as much help to farmers as
was at first expected of them, for the reason that they do
not find it convenient to grant loans for the long periods
required by agriculture, or else they obtain more profitable
employment for their funds in the cities.

Under a law of 1869, credit institutions which receive a
special license may issue legal-tender notes against certain
cash balances. Under a law of 1887 such institutions may
issue bonds for raising money for use in making loans se-
cured by mortgage or on a certain kind of land security
peculiar to Italy. These laws were enacted in behalf of agri-
culture, but only a few of the larger people's banks have
availed themselves of these powers and their transactions
thereunder have not been very important. The usual way
in which they help the farming classes is by making loans
to agricultural associations or rural credit societies or by
discounting the paper passed through such concerns. Most
of the $100,000,000 which the people's banks claim to have
devoted to agriculture is represented by this kind of busi-
ness. Many of the Catholic banks formed on the Luzzatti

354 RTJEAL CEEDITS

principles and located in villages, however, have many small
farmers among their members and have proved themselves
perfectly adapted to their needs. But vrhatever may be the
extent of the financial assistance which the people's banks
have rendered agriculture, they have always given their
friendly services to strengthen the rural banks and increase
their number. This harmonious relation is in striking con-
trast with the situation in Germany where the two systems
are practically opposed to one another.

An agitation for introducing Eaiffeisen credit societies
in Italy began as soon as the enactment of the law of 1883
made the existence of these little institutions possible. At
that time there were 139 of Luzzatti's banks in existence,
but only an insignificant part of their 114,072 members were
farmers. Usury was as rampant in the fields as ever. Luz-
zatti, realizing that something shoiild be done and well know-
ing what the remedy was, said in effect : "If the ardor of an
apostle were to raise up banks similar to those of Eaiffeisen,
they would be welcome. I will not in Italy renew those useless
polemics which have disgraced the cooperative movement in
Germany. If that apostle should not disdain to accept it, I
would offer him my hand for alliance and help." Wollem-
borg, then only 24 years of age, had been studying the sub-
ject for several years, and when he heard Luzzatti's appeal
he replied : "I am he." Both have kept their words. The
elder stood behind the younger man until he had accom-
plished his task, and the two are now recognized as the lead-
ing exponents of cooperative credit in Italy.

WoUemborg started his first rural credit society in Loreg-
gia, a parish near Padua. Everyone told him that his experi-
ment would be a failure, but with the help of the priest he
induced 32 persons to join, and the society was opened on Au-
gust 13, 1883. In 18 months 96 more had joined, and 16 had
gone out, of whom four had died, six migrated, five vrith-
drawn, and one had been expelled. At the end of four and
one-half months the society had taken in $1,400 of deposits,
$400 of which belonged to WoUemborg.

The Loreggia Credit Society has no shares or capital

ITALY: LUZZATTI AND WOLLEMBOEG 355

stock. This was according to the original principle of Eaif-
feisen, which could not be carried out in its purity in Ger-
many where the laws make share capital compulsory. No
dividends are paid and the whole of the profits are turned
into the reserve. The reserve fund is owned absolutely by
the society itself and no member has any right in it. In
ease of dissolution it would be placed in trust to be held in-
tact for any new bank that might be organized in the vicinity
on lines similar to the one dissolved.

The reserve is used for covering losses and for carrying
on operations, and whenever it reaches a size deemed suffi-
cient for these purposes, the annual proceeds are devoted to
some work of common utility. The by-laws expressly de-
clare: "The duty of the society [is] to promote all institu-
tions likely to better, morally or materially, the condition of
the inhabitants of the village, and to foster the foundation
of cooperative associations for production, sale and consump-
tion, by granting loans or opening cash credits to persons
imdertaking such enterprises." AH loans, no matter what
their duration is intended to be, are granted only by succes-
sive renewals of three months each. This practice enables
the society to decline to continue the credit should a bor-
rower's standing or security become impaired; and also to
encourage him to make at regular intervals partial payments
of the money advanced to him.

Disputes between members are decided at their meetings ;
if they are not settled there, three arbitrators must be selected
by the parties, in accordance with the civil code. There is
also a committee of five controllers, who, before the law for-
bade it, might be non-members. This arrangement was sug-
gested by Luzzatti, who believes that the management and
the control of a credit society should always be kept separate
and distinct. Thus the Loreggia bank follows the Eaiffeisen
type, with some important differences. It does not teach
religion, but it requires all members to know how to read
and write. It does not buy or sell supplies, and in place of
long-term loans recallable on four-weeks' notice, it accords
short-term renewable credit. It charges small entrance fees.

356 EUKAL CEEDITS

has an extra body, the committee of control, in its adminis-
tration, and possesses a more ntunerous committee of man-
agement than its German model. In other respects they are
alike.

The Loreggia Credit Society still remains small. It is
not much larger in numbers than it was a few years after it
was started but it is great in power and influence. The thou-
sands of dollars of credit which it has dispensed during its
existence stamped out usury in Loreggia and has raised many
a poor man out of abject want into, a state of competency
where he could support his family in comfort. The habits
of thrift and industry which it inculcated and fostered, and
the spirit of independence, honor and fraternity which it
awakened among its members by making them the responsi-
ble managers and liable one and aU for the society's debts,
did much to elevate the moral tone of the parish. The re-
sults in reforming the moral and economic condition of the
lowly and impoverished classes of which it was composed
were quick to appear. Six years after it was organized the
priest of the village said :

They are going now less to the saloons, and they are work-
ing harder and longer. Since only respectable persons are ad-
mitted as members, the effect has been that even drunkards
have resolved no longer to frequent the saloons and have kept
their vow. Ignorant men of 50 years and over have learned
to write so as to be able to sign applications for loans or notes
or bills. Here an individual, refused admission because he had
applied to the board of charity for help, has taken the steps
to have his name erased from its lists, and now instead of de-
pending on alms, lives upon his own work with the aid of the
money suppHed him by the society. There a poor hired hand
who was barely able to support himself has purchased a cow
and paid his debts vnth the proceeds of the milk and cheese,
and yet has been able to keep the calf, a thing which he could
never have accomplished without the aid of the society.

This shows that rural cooperative credit started in Italy
among the very poorest of the poor. But it is no longer confined
to its original humble circumstances. It has spread over

ITALY: LTJZZATTI AND WOLLEMBOEG 357

the entire country and serves all sorts and conditions of farm-
ers. There were in 1913 at least 2,094 rural credit associa-
tions. One-third of them are non-sectarian and the rest are
Catholic. The former are not consolidated into any system,
although about 300 of them belong to the National Federa-
tion of Eural Credit Societies, which succeeded a similar
organization founded by WoUemborg at Padua in 1887.
This Federation is not an auditing or supervising body. It
has no control over its adherents. Its sole object is to in-
crease the number of credit societies, encourage their devel-
opment, and promote and protect their interest by means
adapted to the occasion. Its official organ is La Cooperazione
Rurale, founded by WoUemborg in 1885, the oldest journal
for cooperative propaganda in Italy.

The Catholic rural credit societies are mostly all grouped
in diocesan unions, which in turn are united to the National
Federation of Catholic Rural Credit Societies organized in

1909, upon which the Pope by a rescript dated January 35,

1910, pronounced his Apostolic blessing. A large number
of them do cooperative buying for members, while there is
a greater tendency toward share capital among the Catho-
lic than among the non-sectarian credit societies. Otherwise,
there is little to distinguish the two except that all members
and officers of the Catholic societies must be of that faith.

The position of the Church in regard to this matter for
Italy as weU as for foreign lands is defined in the epistles
of Cardinal Merry del Val to Bishop Bougouin of Perigueux
and Sarlat on July 29, 1912, to Count Stanislaus Medolago
Albioi on March 15, 1910, and to Louis Durand on April 17,
1910. All these are repetitions of the injunctions laid down
in the encyclicals Berum Novarum and Longinque Oceani.
In the former, issued May 15, 1891, Pope Leo XIII declared :
"Christian workmen must do one of two things, either join--
associations in which their religion will be exposed to peril,
or form associations among themselves — ^unite their forces
and shake off courageously the yoke of so unrighteous and
intolerable an oppression. No man who does not wish to
expose man's chief good to extreme risk will for a moment

358 EUEAL CREDITS

hesitate to say "that the second alternative should by all means
he adopted." In the latter, issued on January 6, 1895, for
Catholics in the United States, he declared: "Now as re-
gards entering societies .... Catholics ought to prefer to
associate with Catholics, a course which will be very condu-
cive to the safeguarding of their faith." Further on, in re-
ferriag to working classes of all kinds, he said that they
"surely have the right to unite in associations for the promo-
tion of their interests, a right acknowledged by the Church
and unopposed by nature." The deep interest displayed by
the Church has given a strong impetus to the movement for
creating Catholic rural credit societies, which began in 1890
after Wollemborg had established 44 societies.

Statistics regarding the rural credit societies of Italy
are meager, for the reason that there are no federations or
supervising authorities to which they are all required to
report. The work of gathering the figures is voluntary and
it is not completely done nor kept up to date. Some of the
societies have capital formed by shares, but most of them
do not require their members to subscribe to shares and they
exact only a small fee of a few lire upon admission. The
societies depend mainly upon money borrowed from
larger banks and upon deposits for carrying on their opera-
tions. In 1913 their capital and reserves -totaled $600,000.
The deposits amounted to about $20,000,000, most of which
came from outsiders. The interest rate varies from 3.5 to
4 per cent. They do a considerable business in the acceptance
of bills, and grant both short- and long-time loans. Short-
time loans are those which run for two years or under. They
are made upon three-months' bills, renewed from time to time
with interest paid in advance. Long-time loans run from two
to ten years, and are repayable by instalments or annuities.
The total amount of loans passed in 1913 was about $50,000,-
000. The interest rate on the credit accorded never runs more
than a point or two over that of the deposits, since in all
societies the services of the officers are gratuitous and the
managerial expenses slight.

The rural credit societies are very unequally distributed

ITALY: LUZZATTI AND WOLLEMBOEG 359

geographically. One-half of them are in northern Italy. In
the center there are only ahout 240, in the south 190, and on
the islands 436. One bank has over 800 members, a few have
100 or more, but the average membership is between 40 and
60. Assimiiag for each bank 100, the total number of mem-
bers would be 209,400, a goodly army, but only a small por-
tion of the more than 9,000,000 farmers of Italy.

The number of rural credit societies is largest where
the population is most enlightened and thrifty. The back-
wardness of agriculture in central, southern and insular, as
compared with northern, Italy, is a subject in which the
Government has long manifested deep concern. In applying
the remedies devised, state aid has been resorted to in order
to stimulate private initiative, and as a result there is much
state-aided cooperation in those regions. The Italian consti-
tution allows special laws to be enacted for any person or
class or for any part of the country, and Parliament began
to exercise this right at an early date in behalf of agricul-
ture.

The first legislation strove to adapt existing institutions
to the needs of farmers and to give them greater commercial
credit facilities, but the Government eventually became imbued
with the spirit of the cooperative movement and now all its
projects are based on the encouragement of cooperation.
Eight central institutions or systems have been created by
special laws for the central and southern mainland and for
the islands. The outstanding credit accorded by these con-
cerns to farmers amounted in 1912 to $7,200,000, most of
which was distributed through local cooperative associations,
in accordance with the preference expressed by the laws. It
is necessary to cite only the more important of these laws.
In 1901 the Bank of Naples was instructed to apply up to
one-fifth of its savings deposits in short-term personal loans
to farmers in its province and in Sardinia, preferably
through associations of a cooperative character. In 1902
the Agrarian Credit Institute of Latium was created for the
province of Eome. The Government obliged the savings
banks of Milan and Rome to make it donations of 300,000

360 EUEAL CEEDITS

and 200,000 lire, respectively, and the Bank of Italy to ad-
vance to it 500,000 lire. Thus it started -with a working
capital of 1,000,000 lire or about $200,000. The Institute can
transact business only through cooperative associations, with
the exception that it may deal directly with the farmers in
places where no such associations exist. Loans must be re-,
paid within one year unless they are granted for the purchase
of livestock or machinery, in which case they may run for
three years. The credit is usually accorded by discounting
bills passed through the rural banks or cooperative associa-
tions. The central and intermediary institution may each
charge one per cent. The rate to the individual farmer never
exceeds by two per cent the rate of the Bank of Italy. A
certain percentage of the annual profits is given by way of
interest or dividends to the banks which supplied the Insti-
tute with its capital, and the rest is set aside for the reserves.
Attached to the Institute ia 1911 were 109 associations with
over 20,000 members, and it furnishes a large portion of
the money which is used in the province for agriculture. The
amount of loans which any association is permitted to have
outstanding with it is limited to $4,000.

In 1904 the Provincial Bank for the BasUicata, with
headquarters at Potenza, was created with a fund of $400,-
000 advanced by the state for 60 years, free of interest during
the first decade and after that bearing interest at two per cent
for the next .five years. In addition, it was given all the
unwooded lands belonging to the state and all the lands
which it might reclaim along the rivers in the province. This
bank may extend both short- and long-time credit, either
directly to the farmers or through the agricultural consor-
tiums, monti frumentarii (public granaries), rural banks,
and cooperative associations. Interest on short-term loans
must not exceed four per cent, and on long-time loans, 2.5
per cent. The latter are given for acquiring or improving
small homesteads, and cannot run for over 50 years.

In 1906 the Victor Emanuel Bank was created for Co-
senza, Catanzaro and Eeggio. It was endowed by the state
with about $400,000, or one-half of the taxes on the lands

ITALY: LFZZATTI AND WOLLEMBOEG 361

in those provinces during a certain length of time. It may
grant both long- and short-time credit, but its principal ob-
ject is to make cash loans to the farmers through the usual
intermediaries. The interest rate cannot exceed five per cent.
In the same year an agricultural department was established
in the Bank of Sicily for making short-term loans, preferably
through cooperative societies, and $600,000 of its own funds
and $400,000 from the Bank of Palermo were set aside for
this purpose.

In 1906 also the Government created a provincial agri-
cultural credit bank in each of the Neapolitan, Sicilian and
Sardinian land register districts, with the exception of the
provinces of Potenza and Naples. These banks, which num-
ber 18, were endowed by the state with $3,765,353. The
savings banks of the provinces were compelled to advance
this money, successively in proportion to needs, in the form
of loans, now reduced to 35 years at 3.5 per cent. The sav-
ings banks are being repaid out of the land tax, a certain
portion of which was set aside for this purpose. The objects
of these provincial agricxdtural banks are to make short-term
loans for distinctively agricultural purposes. In 1911 they
were placed under the management of the savings-bank de-
partment of the Bank of Naples and the agricidtural depart-
ment of the Bank of Sicily. The latter bank was empowered
to use one-fourth of the endowment of the agricultural banks
entrusted to its care in loans to cooperative societies. Fur-
thermore, it may use one-tenth of the net profits of each
bank in giving prizes to encourage agriculture. Two experi-
enced farmers must be made members of the discount com-
mittees of all branches of the Banks of Naples and Sicily
which do business with the agricultural banks. This system
is imder the supervision of the Ministers of Agriculture and
Finance.

In 1907 the two Casse AdempriviH of Sardinia were con-
verted into provincial agricultural credit banks for that
island, and granted a loan from the state of $600,000 for 50
years at two per cent interest beginning in the tenth year.
They were given also a sum equal to one-half of the tax on

362 EUEAL CEEDITS

land as registered in 1905 in their districts; and they were
authorized and instructed to make with these funds and
their own capital, short- and long-term loans to farmers
through cooperative hanks and the other intermediaries men-
tioned above. The rate of interest for short-term loans is
limited to four per cent, and for long-term to 2.5 per cent.

"Ademprivili" comes from the word "ademprivo," which
is the Sardinian name for a form of servitude, formerly exist-
ing on certain lands irrespective of ownership. The servitude
consisted of certain rights of use, such as the right to cut
wood in forested land, to pasture cattle or sheep on cleared
lands, to sow grain in rotation with pasture, etc. The lands
burdened with this servitude were known as 'T)eni adempri-
vili." From this is derived the name of "Cassa ademprivile,"
given to a bank which advances money to the lessees of adem-
privili lands and to cooperative societies for the purpose of
buying cattle, agricultural implements, fertilizer, and other
necessities for the improvement of agricultural properties.
The Cassa Ademprivile of Sardinia has two autonomous sec-
tions or Casse, one at Cagliari and the other at Sassari, which
are the chief towns of the provinces of the same name. The
Cassa makes advances either in money or merchandise to the
"monti frumentarii" and "numarii" in amounts not exceeding
$1,930 each; to the Casse Agraria, or local agricultural banks,
for amounts not larger than their capital; and to the Con-
sorzi Agrarii, or cooperative rural societies, for amounts de-
termined in each case by the directors of the Cassa Adem-
privile. In 1913 the advances made by the Cassa for agricul-
ture through its section at Cagliari amounted to $398,933,
and through its section ait Sassari to $268,793.

In 1910 an agricultural credit institution was created
for the Marches of Umbria, with a fund of $140,000 of which
the state contributed $40,000 and the savings banks of Milan
and Bologna the rest. In 1912 an agrarian credit institute
similar to the one in the province of Eome was founded in
Liguria with $100,000 donated by the state. Other funds
will be supplied it by the savings banks within its territory.
There is now on foot a project for establishing a national

ITALY: LUZZATTI AND WOLLEMBOEG 363

bank for cooperation and labor to operate imder the auspices
and with the assistance of the state. The project has been
approved by the present administration.

None of these various central banks -which the Govern-
ment has set up for central, southern and insular Italy is
allowed to do business with the farmers directly if there are
any rural banks, consortiums, or agricultural bodies either
of an incorporated or cooperative form to serve as intermedi-
aries, and all are expected to encourage the formation of
such intermediaries, particularly of the cooperative kind,
while they have the right to inspect and supervise the reor-
ganization, if necessary, of those with which they have deal-
ings. These central banks are, in fact, the official organs
of the Government for introducing cooperative credit among
poor or ignorant farmers who lack the standing and initia-
tive to help themselves. Several of them were called into
existence and endowed with public funds in consequence of
earthquakes, pests and plagues which devastated wide areas,
and they assisted, it is true, all who applied until normal
conditions were restored. But usually they give preference
to the smallest loans offering the highest security. The
Banks of Naples and Sicily are allowed considerable discre-
tion, but strict rules for according credit have been laid down
for the rest. In Liguria, for instance, the maximum loan is
$600 for three years. The money may be used only for the
purchase of livestock, implements or machinery. Loans of
$200 may be granted for two years for the purchase of fer-
tilizer or for the necessaries for planting biennial crops.
Loans for the same amount may be granted for only one
year for other purposes of cultivation and harvesting. It
will be seen that these state-aided banks of Italy are not
for large or well-to-do farmers.

CHAPTEE XXVI

THE DUAL MONAECHY

Conditions in Austria. — ^Barly Cooperative Movements. — Sehulze-De-
litzseh Banks and EaifEeisen Credit Societies in Austria. — Ger-
man Federation of Austrian Agricultural Cooperative So-
cieties.— State and Provincial Aid. — Conditions in Hungary. —
Early Cooperative Movement and Count Karolyi. — Hungarian
Central Society for Cooperative Credit, the Centre. — Organiza-
tion, Duties and Privileges. — Success and Failures of Hungarian
Credit System. — Three Types of Cooperative Organization Inde-
pendent of the Centre.

AusTEiA-HuNGAET is divided into 18 provinces called
"crown lands," 14 of wMch lie in Austria and four in Hun-
gary. Some of them are coterminous with the ancient king-
doms, duchies and principalities out of which they were cre-
ated and are autonomous in regard to their internal affairs.

In Austria at least eight different languages are spoken,
but the Slavonic races comprise about one-half and the Ger-
man race about one-fourth of the 28,000,000 inhabitants.
The latter is most numerous in Upper and Lower Austria,
Salzburg, Styria, Carinthia, and the northern part of the
Tyrol. Austria is distinctively agricultural and over one-
third of its population are farmers; consequently the agra-
rian element is strong in politics but not always harmonious
because of this racial diversity. Its particidar industry is
territorially unequally developed. In some regions covered
entirely by large estates of 25,000 to 40,000 acres agriculture
has not attained to modem standards, while in others where
the land is broken up into very small holdings it has almost
reached perfection. All this explains the irregular grouping
of agricultural associations according to nationalities instead
of along geographical lines, and also why the Government,

364

THE DUAL MONAECHY 365

yielding to the preponderating influence of the farmers, has
done so much for agriculture.

The farming classes until 1848 were serfs bound to the
soil. Their emancipation in that year did very little good,
because they emerged from servitude in poverty and ignor-
ance and were utterly unable to adjust themselves to the
rapid and enormous development of commerce and industry
in the latter half of the last century. Besides there came
the competition with producers of cereals and raw materials
in America which helped to bring on the universal agricul-
tural crisis in Europe, and the Austrian farmers, at the time
ignored by the public authorities and not yet united, either
migrated to the cities in large numbers, or else remaining on
their farms, eked out a miserable existence between the ra-
pacity of usurers and the cruelty of indifferent landlords.
Their condition in most localities was deplorable even up to
30 years ago.

Cooperation is claimed to be of ancient origin in Austria.
Cooperative dairies of a rudimentary sort have been traced
back as far as the last centuries of the Middle Ages. The
present cooperative movement, however, did not begin until
around 1850. It made its appearance in the form of mutual
aid societies and later in the form of societies for collective
purchase of a peculiar kind afterwards reconstructed on
English principles. Associations for credit were created at
Klagenfurt in 1851, at Aussig and SchoeUnde in 1853, and
at Vienna in 1855. But these were mixed societies in which
benevolence was a prominent feature. Cooperative credit of
the pure type was not introduced until a considerable time
after its marvelous effectiveness had been proved iu Germany,
although Austria belonged to the German Confederation vp
to 1866 and lay near to the kingdom of Prussia where
Schulze-Delitzsch and Eaiffeisen were doing their work.

The first Schulze-Delitzsch bank was opened in Austria
in 1858. At the end of 12 years there were 943 of these in-
stitutions, most of them exact copies of the original. In
1913 there were 3,599, of which 603 had unlimited liability.
The majority of the Schulze-Delitzseh banks are in the

366 ETJEAL CEEDITS

northern provinces of Bohemia, Galicia and Moravia. They
are grouped by region or nationality into federations which
embrace societies for all cooperative purposes. The first so-
cieties formed joined the German union which Schulze-
Delitzsch established at Weimar, but they dissolved this alli-
ance iu 1872, and under their leader Ziller founded the
Federation of Schulze-Delitzsch Societies of Austria. This
Austrian Federation is modeled precisely after its German
prototype. It has seven unions, four of whieh consist entirely
of credit societies, but although national ia its scope it has
not brought into its fold much more than one-fifth of the
credit societies in existence.

About 500 of the Austrian Schulze-Delitzsch banks are
exclusively agricultural and many of the rest have farmers
among their members. No statistics have been compiled
showing the exact amount of agricultural business done but
the figures must be large. Nevertheless, all these banks oper-
ate along urban lines, having shares of a size even greater
than that of their German prototypes and extending credit
mainly by accepting and discounting bills running for three
months or less.

The first Eaiffeisen credit societies in Austria were
founded in 1886. The date, however, is disputed. A GaUi-
cian report to the convention of the International Coopera-
tive Alliance fixes the year as 1880, and Louis Durand at

1887, while others assert that a society of this type was
started in Moravia in the early sixties. Be that as it may,
there were two known societies at the end of 1886, 31 in

1888, and 182 in 1890, and then they began to increase by
leaps and bounds. Five years later there were 1,028, while
the official statistics for 1912 show 7,991, with a membership
exceeding one million. In 1910 their business, credits and
debits exceeded $216,000,000, and the interest rate on de-
posits ran from three to 4.5 per cent, and on loans from four
to six per cent. The cost of management is so slight that it
does not average over 85 cents per member a year.

The Austrian Eaiffeisen credit societies are nearly all
rural, although they have many industrials, shopkeepers and

THE DUAL MONAECHY 367

small merchants among their members. The number of
members per bank rarely exceeds 150 and is often as low as
20. The deposits, taken from anybody, are so abundant that
in nearly every place the banks. obtain from this source all
the money they need for carrying on their operations; in
fact, the amount of the deposits in 1910 exceeded the amount
of the outstanding loans. This indicates that while the farm-
ers are willing to trust the societies with their savings, many
are still unaccustomed to banking usages, and when they
want credit, they prefer to go secretly to their friends or
the money lenders rather than let their neighbors know that
they are in need of assistance. Hence for lack of other busi-
ness these rural credit societies have been compelled to invest
much of their funds in real-estate mortgages, in spite of the
fact that it is contrary to their principles to do so. In
Galicia, for instance, over one-half of the credit accorded is
for acquiring land, erecting buildings and improving the
soil. Such loans run from ten years and are made repayable
by instalments. The short-term loans run up to two years
and the security exacted is usually the signatures of two in-
dorsers on the note of the borrowing member.

The Austrian differ from the Grerman Eaiffeisen credit
societies in that the former charge entrance fees, of ten
crowns ($2.45) or imder, and in some cases distribute divi-
dends. As a rule, however, any profits not needed for the
reserves are devoted to some object of public utility connected
with agriculture. They do not teach Christianily, although
each society is generally composed of persons of the same
faith or race. Moreover, collective purchase is not always
a part of their business as it is in Germany. But they have
displayed the German aptitude to combine and create a
system.

The agricultural cooperative associations of Austria have
formed central banks and racial or provincial federations,
and nearly all belong to the German Federation of Austrian
Agricultural Cooperative Societies. This body, formed in
1897 with headquarters at Vienna, is similar to the German
Imperial Federation. Twenty-eight of the 34 provincial fed-

368 EUEAL CEEDITS

erations and many of the 18 central banks belong to it, and
it thus embraces almost 60 per cent of the rural credit so-
cieties, irrespective of faith, race or language. In 1911 the
most important German federations and central banks
founded a general agricultural bank with a capital fixed at
$800,000, with the right to raise it to double that amount.

Thus in Austria there is a great and continually spread-
ing network of little societies encouraging thrift and helping
agriculture by gathering up the savings in the rural districts
and lending them out to the farmers who have need of credit.
In 1910 there was one rural credit society for every 3,647
of the population, excluding Vienna, and the ratio may
be somewhat better today. But although this splendid and
now indispensable system of rural credit facilities is self-
supporting and self-governing, it did not spring entirely
from private initiative. Its development is due in a large
measure to direct oflScial activity of the Grovernment. "No
other country," writes Dr. Ertl, bureau chief in the Austrian
Ministry of Agriculture, rather extravagantly, "has looked
upon the encouragement of cooperation as such a necessity
for agriculture. Austria must be considered as the most
notable champion of state aid."

The Austrian Government began its activities in behalf
of agricultural cooperation by making small donations to
the rural banks in Istria and Dalmatia. It gave them also
the privilege of borrowing at the public savings banks. Later
on it ordered officeholders from the highest functionaries
down to the village schoolmasters to interest themselves not
only as campaigners but even as organizers of these little in-
stitutions, and supplied them with tracts and literature for
expanding the cooperative idea throughout the land. At the
first Austrian Eaiffeisenist Congress in 1897 the Government
took a leading part in bringing about the formation of the
Federation, and in the following year made it a grant of
$1,960, which was afterward increased to $5,880. Since
1901 the Government has had a representative on the board
of directors of the Federation and a bureau for credit so-
cieties in the Department of Agriculture.

THE DUAL MONAECHY 369i

Some of the provinces took steps at an early date to for-
ward the cooperative movement and have been more gener-
ous than the national Government in giving actual financial
assistance. A few instances may be cited as typical of all.
The Diet of Lower Austria made an outright gift of $50,-
000 and an advance of $500,000 to the central bank in the
province. In 1903 it paid $1,350 to the local banks, besides
$5,455 for expenses of the auditors, and in addition a fund
of over $50,000 was deposited with the central bank for
lending out to the local banks at two per cent a year. In
1888 this province began to grant sums of $100, $80 and then
$60 to new local banks to meet the first costs of organiza-
tion.

Upper Austria compelled the Landesausschuss to lend at
least $40,000 a year to the rural credit societies at three per
cent per annum and $40 without interest to each new society
formed. About the same time Bohemia, Bukowina and Ca-
rinthia adopted the practice of making advances to the rural
credit societies and other cooperative associations, for meet-
ing the first costs of organization, supporting their unions,
conducting inspections and diffusing information. Galieia
in 1899 placed $400,000 at the disposal of the rural credit
societies, in addition to loans previously made. It also
assumed the cost of creating a central agency for the banks
and a part of the expense of forming new societies, to say
nothing of the money spent in propaganda. In Istria, Mo-
ravia, Silesia, Salzbourg, Styria, the Tyrol and Yoralberg,
money was appropriated soon after the movement began, for
making loans without interest to the local societies and for
giving them the necessary inspection, instruction and in-
formation.

The course of intervention which gave impetus to the
agricultural cooperative movement in the beginning in Aus-
tria has been continued down to the present time by the
national and provincial governments. Although the Schulze-
Delitzsch banks have persistently refused all state aid, the
rural societies have always been willing recipients of it.
Today the latter enjoy exemptions or reductions in respect

370 EUEAL CEEDITS

to certain taxes. They are allowed the free use of the mails
in their correspondence with the Government. They are us-
ing about $300,000 advanced by the national Government
and other large amounts from the provincial governments.
Each new credit society that is formed may receive a $60
loan, while all are benefited directly or indirectly by the
appropriations made from the public funds for propaganda
and administrative purposes, for carrying on inspection and
investigations, for giving instruction to cooperative officers,
and for disseminating information for stimulating coopera-
tion. If a bill for the establishment of a national bank for
cooperative societies which is now before the Diet is passed,
they will also obtain their proportionate share in the advan-
tages to be derived from the $1,200,000 with which the Gov-
ernment proposes to subsidize it.

The cooperative societies of all types in Austria are regu-
lated by the law of 1873, as amended by the law of 1903,
which requires every society to submit to a biennial audit
by the provincial authority or by the Federation if this duty
is entrusted to it by the province. The law permits limited
liability and joint and several unlimited liability. The ad-
ministrative organs of a society are similar to those in Ger-
many, with the exception that the board of supervision is
optional.

In the space of 36 years 3,660 Austrian cooperative credit
associations out of a total number of 15,953 have disappeared.
Bankruptcy was the cause in only 249 of the cases.

The four provinces or crown lands of Hungary comprise
the autonomous kingdom of Croatia-Slavonia, Hungary
proper, the principality of Transylvania, and the territory
known as the Military Frontier on the Balkan border. There
are as many different races and languages in Hungary as
in Austria, but the Magyars predominate, representing
twelve millions of the 20,886,787 inhabitants (1910). About
70 per cent of the population are farmers. Agriculture is
backward although the soil is rich and fertile, but year by
year it is being bettered by means of cooperation.

THE DUAL MONAECHY 371

Family cooperative societies have existed in Croatia-Sla-
vonia from time immemorial and are still numerous, while
friendly societies appeared in various parts of the country
about the middle of the last century. The first was the
Savings and Aid Bank established at Bezstercze in 1851, and
the second a similar institution established at Kolozsvar in
1858. In the sixties seven Schulze-Delitzsch banks were
formed in Transylvania by some small Saxon manufacturers
and "annual societies" were started in the trans-Danubian
districts. The latter are credit associations in which the
shares are issued in annual series and are matured by
monthly instalments paid for six years. The first of these
was formed at Gyor in 1864, and the second at Pecs in 1866,
and later on others appeared at Szekesfehervar, Komarom,
and elsewhere. The society at Pecs is still running. Offi-
cials in the Hungarian civil service organized a union on
the friendly-society plan in 1864, which was transformed
into a cooperative society in 1869. The Pesth Savings and
Loan Society was formed for this union eight years after.
Counting all these types there were 103 cooperative banks
and credit associations in 1870 and by 1885 their number
had increased to 398. Their combined business was heavy,
but with the exception of the Austrian and Slavonian family
cooperative societies, which are not banks, their members
were industrials and persons living in the towns or cities.

Cooperative credit as an organized important factor did
not make its appearance in the agricidtural life of Hungary
until after the International Agricultural Congress held at
Budapest in 1885 under the presidency of Count Alexander
Karolyi. Many notables attended this Congress, and Eaif-
feisen was its particular theme. Leone Wollemborg told of
what was being done in Italy, and Endre read a letter from
Eaiffeisen himself and in an impassioned address declared
that the plans of the great father of German rural coop-
erative credit were the only way by which the Hungarian
peasants could be rescued from the thraldom of usury and
the miserable condition into which they had fallen.

The discussions at this Congress and the information im-

372 KTJEAL CEEDITS

parted inspired Dr. Charles Wolff, who a little while before
had begun to study the subject, to renew his efforts to get
the Saxon farmers of Transylvania to form Eaiffeisen soci-
eties. But most important of all, it awakened a deep and
-abiding interest in the wealthy and powerful Count Karolyi,
who imctnediately resolved to undertake the huge task of
making men out of the downtrodden, apathetic and ignorant
Hungarian peasants through the iastrumentality of coopera-
tion. From that day on he strove with all his energies to
accomplish this task, and he was soon recognized as the
apostle and foremost leader of cooperation in his country,
and justly so, because it was through his influence and mu-
nificence that a system for associated action was established
for the farmers of Hungary. He was ably assisted by Ig-
natius Daranyi, Minister of Agriculture, and by Stephen
Bemat, the founder of the cooperative press, whose brilliant
talents as a writer did much to arouse and direct the enthusi-
asm which brought the movement to success.

Count Karolyi started the movement by inducing the
county of Pesth Philis-Solt-Kiskun to found a County Credit
Association of the EaifEeisen type. The county and promi-
nent landowners subscribed to 800 founders' shares of $75
each. This association helped to form numerous local credit
societies within its confines, and in 1894 extended its sphere
so as to include contiguous territory, especially in Transyl-
vania. It was succeeded by a bank with a national scope
which it founded in 1896 with aid of the largest savings
bank in the kingdom. The work of Dr. Wolff also began to
show results about this time, and with the aid of a savings
bank he formed a regional bank and a number of local credit
associations of the Eaiffeisen type in the Saxon villages of
Transylvania. Another independent movement was started
later on in the district between the Drave and the Save.

In 1898 there were 465 credit societies in Count Karoyli's
system and 796 belonging to other groups or scattered
throughout the country. Some of the latter were coopera-
tive only in form and had been organized by usurers to decoy
the unwary into their clutches, a trick always possible where

THE DUAL MONAECHY 373

the laws do not limit the rate of interest to be charged, or
the number of shares any one member may hold, or the
amount of dividends that may be distributed. As for the
rest, they were practically all formed by public-spirited men
through the higher organizations created for that purpose,
and were kept going by the easy money supplied by such
men, by the savings banks, or by the counties in which they
were located. The few that were formed by members them-
selves were located in the cities or in the German settle-
ments.

Everywhere else progress was made under difficulty and
frequently halted whenever the leaders relaxed their grip,
because the peasants, through their ignorance and their dis-
trust of innovations, were utterly uuable to appreciate the
work being done in their behalf. But these 1,200 or more
spoon-fed credit societies were accomplishing wonders in abol-
ishing usury and in transforming their members into useful
citizens by furnishing them with the necessary funds for
earning a decent living. This proof of their worth inspired
newspapers, savings banks and many rich philanthropists to
encourage their growth, while Count Karolyi by exerting
his powerful influence finally induced the royal government
itself to become an active propagandist and financial sup-
porter of cooperation in all its forms for the industrial as
well as the agricultural classes but more especially for the
latter, a course which it was easily prompted to take because
at that time the socialists whom it wished to combat were
stirring up a feeling of unrest among the farmers. Socialism
invariably vanishes when cooperation appears.

Accordingly, in 1898, by virtue of a law enacted in that
year, a state-conceived and state-endowed institution, called
the Hungarian Central Society for Cooperative Credit, was
established to serve as a bank and a propagating organ for
cooperation for industrial and agricultural classes alike
throughout the kingdom. All the cooperative credit societies
affiliated with this institution are accorded privileges and
subjected to regulations of a special nature which make them
entirely different from the societies formed under the coop-

374 EUEAL CEEDITS

erative law of 1875. This old law, which allows both limited
and unlimited liability, was not disturbed, and cooperative so-
cieties may still operate and be formed under it if they do
not wish to avail themselves of the advantages offered by the
new law and the institution created by it, but they enjoy
only a few privileges.

The Hungarian Central Society for Cooperative Credit
supplanted the central bank and took over all the local so-
cieties of Count Karolyi's system. It was modeled after the
Hungarian Land Mortgage Institute and one of the argu-
ments advanced to obtain the charter was that the latter con-
cern and the National Small Holdings Land Mortgage Insti-
tute had not been of much use in financing the small and
medium-sized farmers. This new institution, popularly
known as the Centre, is not cooperative, but its capital stock
is variable and may be increased indefinitely. At the start
it was $742,350, of which the King subscribed $12,250, the
state $245,000, and private individuals and corporations the
rest in shares of $245 each. These are styled founders'
shares, and they will be repaid from a sinking fund being
created for that purpose out of a certain portion of the an-
nual profits. Every affiliated society must subscribe for at
least one share of $49, the liability on which is thirty times
that amount. Dividends are limited to four per cent a year.

The president of the Centre is appointed by the King upon
advice of the Minister of Finance. One vice-president, two
members of the board of directors and one member of the
committee of supervision are appointed by the Minister of
Finance, and the manager selected by the directors from
among themselves is subject to his approval, while all the
affairs of the Centre are under his control and supervision,
carried out by a special government commissioner who has
power to stop action on any resolution of the board of direc-
tors pending his decision. The second vice-president is ap-
pointed by the Minister of Agriculture. The board of direc-
tors, with the exception noted, and the coromittee of super-
vision are selected at a general meeting of the holders of
founders' shares, in which the aflBliated societies may not

THE DUAL MONAECHT 375

vote directly but may be represented in groups of delegates
in a way similar to that provided for borrowers in the Land
Mortgage Institute.

The powers and duties of the Centre are to supply bank-
ing facilities to agricultural and industrial cooperative soci-
eties for credit; to assist small holders in obtaining long-
term loans; to foimd cooperative societies; to prepare models
of by-laws and rules for the carrying on of their business,
and to supervise and control such as are affiliated with it;
and finally to promote the intellectual, moral and material
welfare of workmen and farmers, especially by encouraging
the practice of cooperation. It may establish agencies and
has been compelled to maintain them in Croatia and Sla-
vonia.

Certain privileges have been accorded the Centre to en-
able it the better to perform its duties. It is exempted from
the payment of commercial taxes and certain stamp and
other duties, and it has the free use of the public mails. The
state has given it some hundreds of thousands of dollars
credit at low interest rates, and it may borrow from and re-
discoimt the paper of affiliated societies at all the other Hun-
garian moneyed institutions. It may receive deposits, ordi-
nary and on current accoimts, but not savings, and more-
over may issue debentures free of all taxation and legally
usable as investment for trustee funds. These debentures
are based on the notes of individuals, indorsed by the soci-
eties of which they are members and secured by a fund equal
to one-tenth of their face value and by a special guaranty
fund of $735,000 contributed by the state. To this security
must be added the liability of the Centre and affiliated so-
cieties.

Cooperative credit societies organized under the law of
1898 and affiliated with the Centre must conform their arti-
cles of agreement or by-laws with the models prepared by
that institution. The liability of members is limited to five
times the amoimt of the shares subscribed. This liability
can be enforced by third parties only in bankruptcy, but the
society itself can levy equal assessments up to its full extent

376 EUEAL CEEDITS

. ... .v-i-z-i

against members to meet any losses not covered by the re-
serve. The shares cannot be for over one hundred crowns
($24.50), and may be paid up by monthly instalments rim-
ning for five years. Dividends in excess of five per cent per
annum are forbidden. Any surplus is carried over to the
reserve. At least ten per cent of the profits must be put into
the reserve each year until it equals half the total of the
share capital. Members may withdraw on six months' no-
tice to take effect at the end of the year. None may have
more than one vote or cast that vote by proxy.

The Centre has the right to appoint one member each
on the executive conomittee and board of supervision of an
affiliated society. The managers may be allowed ten per cent
of the profits but no other form of compensation. The Cen-
tre inspects the society at least twice a year, and may force it
into bankruptcy if its affairs are unsatisfactory. The costs
of the inspection are charged against the society or borne
by the Centre. At present the Centre assesses the societies
for this purpose.

A cooperative credit society cannot extend its operations
over more than two adjacent communes, and it usually con-
fines itself to one commune. Its objects are to receive de-
posits from all sources and lend to members only. In addi-
tion to supplying the credit needs of members, many of the
agricultural credit societies buy machines for sale or rent,
keep breeding cattle, or undertake to sell supplies of mem-
bers or maintain warehouses for the storage thereof. A coop-
erative credit society has the same tax exemptions as the
Centre, but its greatest privilege is that it has a lien on all
the movables of a borrowing member which precedes that
of any other of his creditors after he has been once admitted
to membership.

When the capital, reserves and deposits are not sufficient
for the needs of its members, an aflBliated cooperative credit
society may then resort to the Centre for help and borrow
directly or discount the paper of its members at that insti-
tution. But the amount of the credit obtainable from this
source is usually limited to the face value of the shares sub-

THE DUAL MONAECHY 377

scribed by members, plus twice what has actually been paid
up thereon and the total of the deposits and sums invested
by the local society with the Centre. The rate of interest
charged by the local must not exceed that of the Centre by
two per cent except in extraordinary cases. The Centre's rate
is usually from one-half of one per cent to one per cent higher
than that of the Austro-Hungarian Bank, so the rate to the
individual member fluctuates between six and seven per cent.

The credit extended by a local cooperative credit society
may be for either short or long term. Short-term credits are
acceptances or discounts of three-months' paper, or notes
running for five years or under. Liberality is shown in al-
lowing renewals upon condition of making small partial pay-
ments. But security is always required and the money bor-
rowed must be used for some specified productive or provi-
dent purpose. The articles of agreement of each society must
fix the maximum for the credit which may be accorded to
any one member. This rarely goes beyond 15 per cent of the
society's paid-up capital. The long-term loans may run from
10 to 50 years and be repaid either by instalments, amortiza-
tion or in lump. Such loans are granted only to small hold-
ers on mortgage, and usually for the purpose of lifting a
more burdensome prior encumbrance or for acquiring or
improving a homestead. Seventy-five per cent of the ap-
praised value of the property is allowed. Such loans are not
made with the society's own funds, but in the following
manner: The loan is split into a first mortgage for 50 per
cent of the value of the property, and into a second mortgage
for 20 per cent of the value thereof. Both are assigned to
the Centre, which reassigns the first to some mortgage bank,
and retains the second to be used as security for its deben-
tures. During recent years the real-estate loans have usually
been turned over to the National Land Credit Institute for
Small Holders and the National Federation of Land Credit
Institutes, mentioned in a previous chapter.

In 1912 the capital of the Centre was roughly $1,632,900;
its reserves were $332,413, deposits $7,532,392, and deben-
tures in circulation $9,138,850. The affiliated societies num-

378 EUEAL CEEDITS

bered 2,412, of which 226 were industrial and all the rest
agricultural. Their combined paid-up capital was $41,436,-
500, reserves $11,355,400, and deposits $29,845,475, and the
amount of the credit accorded to their 665,333 members, in-
cluding the discounts of the Centre and the long-term loans
taken by the mortgage banks, amounted to over $75,000,000.
These mortgage loans were for sums rarely exceeding
$1,000, while the average size of the bills accepted or dis-
counted was $75. Bills as small as 50 cents were discounted,
all of which shows that the business done is confined to the
small folk, as it was intended that it should be.

The success achieved by this Crown-devised and state-
aided cooperative credit system of Hungary was a surprise
even to those who conceived it. The system was established
purely as an experiment, but it now covers 7,777, or over
one-half, of the parishes of Hungary. It has stamped out
usury and revived agriculture within that area, and has
given a strong impetus to the cooperative movement which
is now spreading throughout the land. But it has defects
and shortcomings which are becoming more apparent with
time.

The intervention of the state has deadened the spirit of
self-help. The arrangement which deprives the farmers of
direct representation in the management of the Centre and
even compels them to accept persons not of their own choos-
ing for certain offices in the local societies, violates the im-
portant principle of cooperation and retards the develop-
ment of individual independence. Great numbers of the
societies have been formed and are managed by the priests,
teachers, notaries or large landowners in the neighborhood,
and the members have no mutual feeling for one another but
join simply with the object of benefiting themselves alone.
The artificiality arising from this outside control has created
distrust of the system in banking circles. Coupled with this
distrust is the enmity aroused by the official favoritism dis-
played and the class legislation enacted for farmers, and as
a result the Centre, which is now mostly agricultural, finds
difficulty in negotiating its debentures and rediscounting the

THE DUAL MONAECHY 379

paper of the local societies. Indeed, the system is badly in
■want of money for extending its activities, and the Minister
of Agriculture recently acknowledged that unless it can at-
tract more deposits or establish better relations with existing
financial institutions, the state will have to be called upon
for further assistance.

The law of 1898 authorizes other bodies, such as county
councils, chambers of commerce and industry, and public
agricultural corporations and associations, to form local credit
societies. But by common consent the organization of coop-
erative credit under this law has been left to the Centre.
There are in Hungary, however, quite a number of coopera-
tive credit societies which are entirely independent of the
Centre. Most of them were formed before that- institution
came into existence, and except for a few scattered here and
there, they belong to three distinct groups. The first group
consists of the 176 credit societies of the EaifEeisen type, six
wine-vault societies, and 48 supply societies connected with
the savings bank at Nagyszeben, Transylvania. They have
18,000 members and a capital of about $4,000,000. The
second is the Servian Federation at Zagrab, with 334 soci-
eties. They are chiefly engaged in acquiring leaseholds for
allotment among members. The third comprises the 352
EaifEeisen societies with 38,000 members afSliated with the
Croatian Agrarian Bank at Zagrab.

CHAPTER XXVII

BELGIUM, HOLLAND, LtTXEMBUBG, DENMABK,
SCANDINAVIA, AND SWITZERLAND

Cooperative Credit Early Devised in Belgium. — Credit TTnion of
Brussels. — Farmers Not Benefited. — Comptoir Agricoles and the
General Pension and Savings Bank. — The Boerenbond. — Syndi-
cates.— ^Village Associations in Holland. — The Catholic Church. —
Eindhoven Central Bank. — Central Banks at Utrecht and Alk-
maar. — High Degree of Cooperation in Luxemburg. — State
Banks. — Cooperation for Buying and Selling in Denmark. — Gov-
ernment Encouragement of Eural Credit Societies. — Mortgage-
bond Companies of Norway. — Early Cooperative Associations
for Sweden. — ^RaiflEeisen Societies in Switzerland. — Swiss Union
of Kaiffeisen Banks. — SmaU Banks and Ample Credit. — Cattle-
purchasing Commissions of Thurgau.

PoPTTLAB credit with cooperative features was devised and
introduced in Belgium before Schulze-Delitzsch and Eaif-
feisen had thought of the idea of using self-help instead of
charity as a means of rescuing poor people from their pov-
erty. In 1848 Prangois Haeck organized the Credit Union
of Brussels, "without capital stock, shareholders, dividends
or lucrative object," for the purpose of discounting the paper
of commerce, industry and agrictdture and workers therein
and procuring for them the money they needed up to the
limit of their "moral and material worth." But this Union
deviated from its original spirit and Belgium lost to Ger-
many the honor of being the birthplace of cooperative credit
on the Continent.

The Credit Union of Brussels is composed entirely of
borrowers or prospective borrowers each of whom has but one
vote. It is managed by a board of directors, the usual staff
of officers, a committee on membership and a discount com-
mittee. The social fund is variable and illimitable, but must

380

BELGIUM, HOLLAND, LFXEMBUEG, ETC. 381

never fall below $800,000. It is created by subscriptions of
persons desiring to obtain credit. The lowest subscription is
$100. The maximum is not fixed but must correspond ex-
actly with the amount of the credit granted or to be opened
for each member. Five per cent of the subscriptions must
be paid in cash and the rest is subject to call. When the
losses of the Union exhaust the reserves and one-fourth of
the paid-in share capital, each member must pay his pro-
portionate assessment to the Union. Beyond this there is
no liability. The admission of a person to membership estab-
lishes his right and the extent thereof to credit, but he is
required to furnish adequate security, real or personal. A
member may hold more than one share, within limit as to
number and value determiaed by the board of directors.
This limit extends in some cases to thousands of dollars.

The principal operations of the Credit Union of Brussels
are discounts and rediscounts, the purchase of commercial
paper, the receiving of deposits and accounts current, execut-
ing orders for the purchase or sale of investment securities,
and making loans on collateral. All these operations except
discoimting may be carried on with outsiders. Deposits may
be invested only in paper maturing in 100 days. The Union
may issue bonds with fixed time for payment, but the amount
in circulation must not exceed one-tenth of its share capital.
The notes or bills presented by members for discount must
not be longer than three months. Loans on collateral may
nm for 100 days. The interest rate follows that of the
National Bank, increased usually by one-fourth. This extra
interest may be distributed among the members as a rebate.
Long-term loans were granted by means of repeated renewals
of notes down to the year 1877, but the practice is not now
allowed. The profits of the Credit Union of Brussels are
disposed of thus: first, an amount determined by the man-
agement is put into the reserve which must always be main-
tained at a minimum of $5,000, and then a five per cent divi-
dend may be distributed; of the balance 20 per cent is paid
to employees, five per cent to a sanatorium, and 75 per cent
goes either into the reserve or as an extra dividend. In 1910

382 EUEAL CREDITS

the Unioii had 5,232 members and a capital of $14,207,600.
Its discoimts and rediscounts amounted to $50,923,600, its
loans to $5,258,400, and its deposits and accounts current to
$5,270,400. A five per cent dividend was declared in that
year.

There are now six credit unions in Belgium and a num-
ber in France and Switzerland, but none is important except
the one at Brussels, while all have ignored the farmers and
even the small people in the cities. Their business comes
mainly from the better class of traders and merchants. The
exclusion of the farmers is due to the fact that no long-time
loans are grafted. The exclusion of small folk results from
placing no limit on the size of the shares or the amount of
dividends which may be declared. Nevertheless the plan of
organization and operation of the credit unions is a good' one.
It is based on credit capital, or the use of character and
financial standing instead of cash capital, as the means of
obtaining and guaranteeing the funds needed by members.
The credit union is of very ancient origin, dating back to
the Middle Ages before corporations were devised and when
banking was done individually or by groups of men. It has
always proved safe and effective where men are honest and
capable, and the Central Society of Agriculture of Belgium
was inclined toward this method around 1870 and gave seri-
ous consideration to a project submitted by Mr. Haeck for
the establishment of an elaborate system of credit unions
composed entirely of farmers to be located in the chief cities
of aU the cantons.

This project, however, came to naught. Cooperation in
its true form had made its appearance about a decade previ-
ously and eventually became recognized as the best means
for financing farmers. The first cooperative credit society
in Belgium was formed by Leon d'Andrimont at Liege in
1864. In 1865 others were formed at Verviers and Huy,
in 1866 at Gand, and in 1869 at Namur and Saiat Nicholas.
In 1873 the first Belgian law on cooperation was enacted,
which, as amended in 1886, is still in force. In 1875 cooper-
ative societies were exempted from various stamp duties.

BELGIUM, HOLLAND, LUXEMBUEG, ETC. 383

taxes, and registration fees. A few more societies were then
formed, and all the existing institutions were grouped into
a federation under the presidency of Mr. d'Andrimont. These,
cooperative credit societies were of the Schulze-Delitzsch
type. They have now dwindled down to ahout 45, of which
two, at Goe-Limburg and Argenteau, respectively, are mainly
agricultural. In 1910 the first had no transactions, while
the second made only 43 loans to farmers of a total of only
$11,283.

The failure of the credit unions and of the people's or
Schulze-Delitzsch banks to extend their operations to farm-
ers led the Government to intervene in 1884 to provide other
facilities for them. In that year a law was passed with the
object of making the General Pension and Savings Bank the
financial head for agriculture by enlarging the powers of
the concern under its original charter so as to permit loans
to or through a new kind of institution called "comptoir
agricole" brought into existence by virtue of this law. A
comptoir is a body of at least three persons whose sole object
is to guarantee loans granted to individual farmers by the
General Pension and Savings Bank. In other words, it is,
as its name implies, a subsidiary agricultural counting-house
of the Bank, and hopes were entertaiaed that through its
operation as a local agency, the Bank would be able to make
advances in safety and abundance to farmers throughout the
country.

This idea of covering the country with local comptoirs
attached to a central bank was evidently suggested by the
abandoned project of Frangois Haeck, although there are
vital points of difference between a comptoir and a Belgian
credit union. Unlike the latter the comptoir has no coopera-
tive features whatever and does not confine its services to
members. True, farmers might form a comptoir to guaran-
tee loans made to themselves or to one of them but this has
never been done. These coimting-houses are formed by per-
sons connected or at least in sympathy with the General
Pension and Savings Bank, with the aim of protecting its
interests and obtaining the fees it allows. The fees are a

384 EUEAL CEEDITS

del credere commission, that is, paid by the creditor to in-
termediaries for assuming responsibility for the money lent.
This commission is now three-fourths of one per cent a year
on the amount due on the outstanding loans, a compensation
rather small for doing all the work, assuming all the expenses
and standing responsible for all losses incurred in a loan or
banking business consisting of small sums and many details,
and this is perhaps the reason why practically only long-term
mortgages are now taken. In 1894 the powers of the Gen-
eral Pension and Savings Bank were again extended so as
to permit it to make loans to cooperative societies, and the
Bank thereupon set aside $200,000 to be lent at S^^ per cent
to cooperative credit societies which should be affliated with
their own central banks.

Nineteen comptoirs agricoles have been formed, 15 of
which still subsist. They had indorsed only $3,757,146 to
the end of 1910. The loans were for sums between $300 and
$10,000, all amply secured. The larger ones ran for 30 or
more years and were reducible by annuities. The interest
charged borrowers was 5.5 per cent and the bonds secured by
these loans bore interest at 3.6 per cent.

The General Pension and Savings Bank is gradually los-
ing its importance in cooperation. The credit societies
and central bank of the Boerenbond have no relations with
it, while most of the credit societies belonging to other feder-
ations have ceased to depend upon it because they are able to
obtain all necessary funds through their own central banks.
The 318 credit societies, indeed, had credit accounts with it
to the amount of $181,316 in 1910, but had drawn against
these only $48,273.

The extension of the powers of the General Pension and
Savings Bank so as to enable it to aid agricultural coopera-
tion was granted upon its own request inspired by a Catholic
priest. Father Mellaerts. In 1890 MeUaerts organized the
Boerenbond, or Peasants' League, for the guidance of Belgian
farmers in their religious, moral and material affairs, and
under its auspices he founded at Eillaer in 1893 the first
Eaiffeisen bank in Belgium. The good accomplished through

BELGIUM, HOLLAND, LU-XEMBURG, ETC. 385

his enthusiasm and untiring energies soon brought him to
the attention of Mr. Mahillon, the president of the Bank, with
the result that Mr. Mahillon induced the Government not
only to make the changes in the powers of his hank, but
also to appropriate a fund so that the Belgian Department of
Agriexdture could pay the cost of inspection and most of the
organization expenses of the rural credit societies. Twenty-
five dollars is now given to each new society duly registered
and five dollars to central banks for each local society affili-
ated with them.

The work then began in earnest, and today cooperative
banking has gained a strong foothold in rural Belgium. It
has taken the syndical direction which prevails in Prance,
that is, the farmers form syndicats, and then as members
of these syndicats form local societies for credit and other
purposes, so that the cooperative activities in every locality
are closely knit together. In 1912 there were 272 farmers'
syndicats with 2,132 adhering societies, nearly all belonging
to 49 federations. Among these were 738 rural cooperative
societies and seven central banks. The 538 credit societies
which rendered reports to the Minister of Agriculture in
1910 had at the close of that year 27,334 members, of whom
5,442 were not farmers. The total of outstanding loans
amounted to about $2,291,014, and the reserves to $93,831.
The deposits with the entire working capital amounted to
$4,582,457. The bulk of the loans were for $200 and under.
The time ran from 100 days up to ten years. Life insur-
ance is sometimes taken for security, but most of the busi-
ness is done on the indorsement of a fellow member. Mort^
gages are required for the long-term loans, which are in-
variably reducible by instalments.

The Belgian laws allow limited or unlimited liability but
require share capital and forbid the accumulation of an in-
divisible reserve. Consequently the rural banks cannot be
strictly Eaiffeisen, but although they charge entrance fees
(usually one franc), they adhere as closely to type as possi-
ble by making both shares and dividends small. Many evade
the laws further by dividing their surplus into halves. The

386 ETJEAL CEEDITS

first half consists of the profits on loans made out of deposits
and the society's own funds, and is retained to be distributed
only in case of dissolution. The second half is created partly
from the same source and partly from profits on advances
received from its central bank, and is held to be turned over
to the latter on the same eventuality. Collective purchasing
is a common practice with the local credit societies.

The local banks affiliate with central banks by subscribing
at least one share, usually of about $30, involving a liability
limited to ten times the amount of the share. They obligate
"themselves to keep all but a few dollars of their deposits with
the central bank, and also to submit to inspection by it. The
Boerenbond or Peasants' League founded by Father Mellaerts
at Louvain, a Catholic organization, has 363, or nearly one-
half, of the rural credit societies of Belgium, and all are
members of its central bank, which is the largest of the seven.
This bank has a land section, financed by bonds bearing 3.6
per cent interest, which lends to farmers on real-estate mort-
gages through the local societies at 4% per cent. But in order
to get money for this purpose, a local credit society must sub-
scribe one share of ten dollars for every $100 advanced to it
for use of its members.

Agriculture in Holland is well organized by means of
vUlage associations grouped under proviucial federations,
which in their turn are bound together by a national fed-
eration. This system has been established largely through
the efforts of the Catholic clergy. In fact it was started by
the priests, who have always shown great activity iu advanc-
ing the economic interest of the farmers and to this end have
bent their energies to promote various forms of cooperation.

In 1890 cooperation was little known among the Dutch
farmers although a cooperative law was enacted in 1876. To-
day it has reached vast proportions. Its development has
been directly encouraged by the state working in harmony
with the Catholic Church and private initiative. The chief
object of the state aid has been the improvement of the
breed of cattle and the creation of effective credit facilities.

BELGIUM, HOLLAND, LUXEMBUKG, ETC. 387

The first cooperative credit society in HoUand was formed
at Maasbracht in Limburg on June 15, 1895. The second
was formed the following year at Louneker. Both took the
Eaiffeisen type, as did all societies subsequently formed, and
Holland has the largest and purest Eaiffeisen system outside
of Germany. New societies registered under the 1876 law are
allowed $30 by the state ; if registered under the general law
on associations of 1855, they are allowed only $3, when affili-
ated with a central bank. In 1910 there were 632 local
credit societies in Holland, and although nearly all of them
owe allegiance to the Federation of Dutch Peasants, they are
divided into three distinct groups under the central banks
at Eindhoven, Utrecht and Alkmaar, by which they are regu-
larly inspected and supervised.

The Eindhoven central bank was formed ia 1896 by the
Peasants' Christian League and it requires all members of
adhering locals to be Catholics. Its territory lies in the
southern provinces. It operates imder the law of 1855 as a
limited-liability association. Its members are local credit
societies and such other societies as may be incorporated for
the advancement of agriculture. The shares are $400, and
each adhering society must take at least one and pay in one
per cent thereof. After the share has been entirely paid up
the liability ceases.

In 1910 the Eindhoven central bank had 283 adhering
societies with 21,959 members, all farmers. Its capital was
$222,400, of which only $2,616 was paid in. The reserves
were $30,000, and deposits $1,708,145, and all transactions
amounted to $4,183,324. The interest on deposits was 3.25
per cent, and that on loans 3.75 per cent. Its subsidy from
the state was $1,000.

In 1908 the Eindhoven central bank established the
Peasants' Cooperative Mortgage Bank with a capital of
$400,000, of which $80,000 was subscribed by the central and
locals. This Bank grants loans at 4% per cent for 40 years
or longer on condition that one per cent of the principal be
paid back each year. It finances itself by issuing bonds,
and paid in 1910 a dividend of 21/^ per cent.

388 EUEAL CEEDITS

The central bank at Utrecht was organized in 1898. It
is imdenominational and admits to membership societies
■whose members are not farmers. It operates principally
in that part of Belginm not covered by the Eindhoven bank
but in many places they work side by side. In 1913 its
capital was $174,800, of which only $10,712 was paid in. The
shares are $200. Ten per cent must be paid in on the first
share, but on others only ten florins ($4) need be paid at
the time of subscription. The liability assumed on each
share. is $1,000. Membership is confined to local banks and
agricultural societies and its own ofBcers. Each adherent
must subscribe to at least one share and may hold a maxi-
mum of ten shares. The maximum of credit which may
be accorded is $4,000 for each share held. In 1912 the
Utrecht bank received a subsidy of $1,360 from the state,
and at the close of that year it had 439 adherents with 21,941
members. Its deposits amounted to $2,601,139, and its out-
standing loans to the locals to $654,636. The interest rate
on deposits was 3% per cent at the highest, and on loans
414, per cent at the lowest. Por adherents which kept no
deposits with the bank the rate of interest charged was 5
per cent.

The Alkmaar central bank was founded in 1901 by dis-
sidents from the Utrecht central bank, and occupies the
province of North Holland, or a portion of the latter's ter-
ritory. The 2,466 members of its 32 adhering locals are
mostly Catholics. It is a pure cooperative body, with un-
limited liability, and all its adherents hold equal shares
in the capital and profits. In 1910 its deposits were $109,943,
drawing 3%^ per cent, and its loans $41,062, yielding four to
4^ per cent. The reserves were $2,772. The subsidy received
from the Government was $200.

The Government assumes all the expense of inspecting
each of these banks above $200 a year. The late statistics of
these three central banks are very incomplete, but show that
great progress has been made in the past four years.

In the little Grand Duchy of Luxemburg there are only
40,000 farms. Half of them have less than 2^ acres. Of

BELGIUM, HOLLAND, LUXEMBUEG, ETC. 389

the rest, 16,000 farms are under 180 acres, and but 185
farms over that area. Cooperation has naturally reached a
high degree of usefulness in the midst of such intensive
cultivation. Its use, however, is aU for collective sales and
purchases. There are no cooperative credit societies. Their
place is filled by the agricultural and people's banks estab-
lished by the state.

These state banks serve tradespeople, employees and in-
dustrials, as well as farmers, within the areas assigned to
them. They came into existence by virtue of the laws of
1900 and 1906. They are formed by the Government upon
request of the municipal councils. The credit accorded is
strictly personal. A loan over $200 or for longer than three
years can be granted only in exceptional cases, and then
must never exceed $400 for five years. The maximum rate
of interest is five per cent. The rate now charged is four
per cent. The working funds are supplied by the Savings
Bank of the Grand Duchy at a rate which must never exceed
four per cent.

The Savings Bank is represented in the administration
of every one of these little banks, and in ease of insufB-
ciency of securities given for its advances, may demand a
guaranty from the municipalities. These banks now number
18. The customers are mostly farmers, but so far very little
business has been done. In 1909 the outstanding loans
amounted to only about $25,000.

Cooperation is extensively used in Denmark for collective
buying and selling of farm supplies and products and also
for long-term credit for both large and small estates. Co-
operative credit for short term has made very little progress,
although as far back as 1898 the Government intervened di-
rectly to encourage its advancement. In that year a law
for rural cooperative credit societies was enacted and $1,340,-
000 appropriated to be loaned among societies which should
be created in accordance with its provisions. As subsidy,
however, invariably means state control to a greater or less
extent, strict rules and regulations were laid down for the

390 EUEAL CREDITS

organization and management of credit societies, and this
may account for the slowness of their growth.

A rnral cooperative credit society under this law must
consist of at least 50 farmers residing in the same county
and owning together 500 or more head of cattle. The
president is appointed by the county council, and the amount
the society may receive out of the appropriation is deter-
mined by the Agricultural Commission, which is the oflBcial
custodian of various public funds. This amount must be
somewhere between the values of 1,000 and 10,000 head of
cattle, unless the Ministry of Agriculture permits another
figure. This advance from the state originally bore three
per cent interest and was required to be repaid in 1908, when
it was intended that the entire appropriation should be re-
called and the societies left to stand on their own feet. But
in that year the law was amended so as to provide that only
two-tenths of the loan should then be repaid and one-tenth
each year thereafter from 1909 until 1916, unless otherwise
provided by law. In consideration of giving this grace, the
rate of interest was raised to 3^ per cent and the societies
were enjoined against charging more than five per cent to
members.

The sole object of the societies formed under the 1898
law is to guarantee the return to the state of the moneys
which were advanced by it and to see that they are put to
their proper use. All members are jointly and severally liable
to the state. Loans may be granted only to members and for
meeting urgent and necessary expenses for wages, buying
seed, fertilizer and supplies, and the upkeep of the farm and
live stock. No security is allowed to be taken. The finan-
cial standing of a member is determined by the registered
cattle he owns, and the extent of his credit is $13.40 per
head. The officers receive no compensation, and all gains
are placed in the reserves, which may be used for loans on the
same terms provided for those made from the state subsidy.
According to the last official statistics (1905), there were
168 of these societies, with 21,575 members owning 161,710
cattle registered on the societies' books.

BELGIUM, HOLLAND, LUXEMBUEG, ETC. 391

Norway has no cooperative banks for according either
long-term or short-term credit. A few societies formed for
the collective buying of fodder and fertilizer sometimes make
loans to- members. The mortgage-bond companies, of which
there are a number, make many loans for agricultural pur-
poses to individuals and also to societies which are willing to
pledge the mutual liability of members as security. But the
chief source of credit for farmers is the savings banks. These
institutions supply the well-to-do farmers vri.th what money
they need. The poor classes depend on the Norwegian
Bank for Laborers' Holdings and Dwellings, described in a
previous chapter.

Agricultural conditions in Sweden are similar to those
in Norway. But cooperation is extensively practised in
Sweden, as the idea was acclimatized there at an early
date by the landowners' mortgage associations. In 1911 there
were 5,869 Swedish cooperative associations, agricultural
and industrial. Only 23 of them had credit for their object,
and two of these were solely urban. A new cooperative law,
however, was enacted in 1911, which makes important
changes in the old 1895 law on economic associations. This
new legislation has given a strong impetus to cooperative
credit, and the existing societies are planning to establish
a central bank, while a campaign has been started for local
banks.

Cooperative credit made its first appearance in Switzer-
land during the sixties of the last century in the form of
people's banks similar to the Schulze-Delitzsch banks for
industrials and shopkeepers in the cities. But they did not
conform closely to type. Some of them had imlimited lia-
bility and others limited liability, while not a few were alto-
gether without capital, its place being supplied by the guar-
anty of the communes or benevolent institutions. They
grew in numbers with the progress of cooperation generally,
but none was started for farmers until after the cooperative
law was enacted in 1883.

The first rural cooperative credit society in Switzerland

393 RUEAL CEEDITS

was foimded at Schlosslialde in the vicinity of Berne in
1887 by a clergyman named Traber. Another was formed
the same year by Von Steiger, a councillor of state, but
the movement did not become active until 1900 when Traber
formed his second society at Biehelsee in Thurgau. The
first society was composed of 20 Christian socialists, and
although the Swiss laws did not make share capital obliga-
tory, it required each member to subscribe to a share of 50
francs ($10) to be paid up in instalments, forbidding, how-
ever, any member to hold more than one share. This share
was allowed a dividend of five per cent out of the profits after
50 per cent thereof had been set aside for the indivisible re-
serve. After the reserve reached the amount of the liabilities
of the society, it was provided that the net annual profits, di-
minished by the dividends, should be devoted to some object of
an agricultural or industrial nature for the benefit of the
members. Barring this requirement for share capital and
entrance fees, the first rural cooperative credit societies of
Switzerland were replicas of the German Raiffeisen societies,
because they purchased supplies and sold produce for their
members and looked out for their religious and moral as well
as material welfare.

By 1902 there were 15 rural cooperative credit societies,
all practically like the first which was founded. Under the
direction of Traber they combined and formed the Swiss
Union of Eaiffeisen Banks, which subsequently assiimed the
position of a national federation and brought into its fold
four large cantonal unions. But the right of supervising
or inspecting its adherents has not been conceded to it, nor
is such control exercised in a compulsory way by the can-
tonal unions or any other authority. Consequently the
statistics which have been gathered are not sufficiently full
or accurate to show the true situation. In 1910 there were
at least 139 rural cooperative credit societies with 10,024
members, and 18 of the societies, besides receiving deposits
and according credit, bought and sold farm supplies and
produce in the true Eaiffeisen style. In that year all but
nine of the societies belonged to the Swiss Unions The

BELGIUM, HOLLAND, LUXEMBUEG, ETC. 393

business done amounted to around $3,300,000. In 1911
tlie affiliated banks had increased to 153 with 9,854 mem-
bers, with about $9,000,000 of business.

Thus cooperative credit has gained a firm foothold in
Switzerland, but the idea was not introduced on account of
any lack of banking facilities. The little republic has been
adequately supplied for many years with banks which reach
all classes of people, and she is frequently referred to as
the only country in which farmers have too much credit.
There are many state, communal, private and small joint-
stock banks with capital of a few thousand dollars each,
which, in addition to receiving deposits, handle discounts
and do all kinds of banking business. These concerns for
over two score years have been collecting petty savings and
redistributing them in their respective localities, and thus
have extended banking to the very doors of the rural bor-
rowers. ITecessity did not bring cooperative credit into
being in Switzerland. It was started because of its moral
effect in teaching farmers to be their own bankers and to be
mutually responsible for one another.

Besides all these facilities there was a peculiar form of
cooperative credit in common use in the canton of Thurgau
for the purchase of cattle, long before the regular form of
cooperation was thought of. Indeed, it is so peculiar that
it exists in no other country. Cattle raising and dairying
are the chief industry of this canton, the inhabitants in some
of the communes being nearly all devoted to it. In 1851
a cantonal law was enacted authorizing the opening of com-
munal offices to assist farmers financially in buying cattle.
These offices are managed by a commission elected by pop-
ular vote. The commission may borrow money for its pur-
poses by issuing bonds or notes upon which aU of the elec-
tors of the respective communes are jointly and severally
liable. Hence this form of cooperation is in a measure
voluntary. The farmer who obtains a loan from the com-
mission must give a chattel mortgage on the cattle pur-
chased or some other sufficient security. Sixty dollars is the
highest sum lent on one head of cattle. This plan soon

394 EUEAL CEEDITS

proved so effective that the cantonal government adopted
the practice of making annual appropriations to every com-
mune in which a commission is established. There are now
at least 35 cattle-purchasing commissions in Thurgau, and
the appropriations with the accumulated interest thereon and
the small charges added to the borrowers' interest, have
now created fimds which equal the outstanding loans of the
various communes. This practice has been adopted in other
cantons, notably in Zurich.

CHAPTEE XXVIII

EUSSIA AND THE BALKAN STATES

Activity of Cooperative Societies in Eussia. — The Artel. — Early Co-
operative Loan and Savings Society. — Moscow Agricultural As-
sociation.— Schulze-Delitzsch Banks. — Credit Societies. — General
Board for Small Credit and the Bank of Eussia. — Legislation
and Government Aid. — ^Zemstvo Banks. — ^Moscow People's
Banks. — Conditions in Finland. — ^Highly Centralized Coopera-
tion.— Central Cooperative Credit Establishment. — People's
Banks in Eoumania. — Central Bank. — State Aid. — Servian Banks
of Eaiffeisen Type. — Joint-stock Central Bank. — General Union.
— ^Public Granaries. — Farmers' Banks of Bulgaria. — Central Ag-
ricultural Bank. — Unique Central Cooperative Bank. — Coopera-
tive Attempts in Turkey iand Cyprus. — Cooperation Among Jew-
ish Colonists in Palestine.

The mighty empire of Eussia comprises many races
which differ one from another in language, customs and
local laws, while all degrees of intelligence down to unlet-
tered ignorance are found among its numerous rural popu-
lation. The rural population of European Eussia is the more
enlightened, yet the bulk of even the European farmers were
serfs bound to the soil as late as 1861. They emerged
from bondage without land or the means to buy it, but behind
them lay the vast, desolate steppes of the interior which have
now become the granary of two continents. The organiza-
tion of credit in such a nation naturally followed various
lines, and much of it bears the stamp of an autocratic govern-
ment solicitous for the welfare of a people whom it looks upon
as its wards. Nevertheless, Eussia is second only to Ger-
many in the number of its cooperative societies and sur-
passes all the world in the rapidity of the progress which
it is making in the advancement of cooperative credit.

395

396 EUEAL CEEDITS

The earliest form of association in Eussia was the artel,
sometimes temporary in character and sometimes more like
a guild composed of persons of the same class, bound to-
gether under the leadership of a chief for mutual assistance
and defense. Formerly the artels were without written rules
or regulations. They now exist in unknown numbers, and
many of them operate under signed articles of agreement;
they have millions of dollars at their disposal in the banks.
The more influential artels charge large entrance fees, but
have no trouble in getting new members because they take care
of all who are out of woik if employment cannot be found.

Members frequently own little farms on which they live
a part of the year, but the artel is not for landowners. It
owes its origin to the habit of the unencumbered laborers
and peasantry of pulling up stakes and migrating in droves
from their old homes to more attractive regions on the broad,
easily traveled prairies of the Eussian hinterland. While
extending financial aid in times of need, very few artels have
gone into the credit or bankiag business. Those which have
adapted themselves to modern conditions became economic
cooperative societies or labor unions. Hence the Eussian
peasants were compelled to find other forms of association for
credit purposes.

In 1840 the communes created loan funds and organized
a few provident savings banks, but these had no coopera-
tive feature and were simply a method adopted with the view
of getting banking dovm to the people. The first mutual
credit society iu Eussia was foimded in 1864 in the city of
St. Petersburg. The next year S. P. Longuinine, imbued
with the spirit of Eaifleisen, started a savings and loan so-
ciety, which was soon followed by others in a number of
rural communities. In 1866 a cooperative loan and savings
society with shares payable by annual instalments was founded
at Dorovatovo. This model met with the approval of the
Moscow Agricultural Association, -^hich formed a perma-
nent commission to propagate the idea. The cooperative
movement may be said to have begun in that year.

Officials of the provincial and district governments were

EUSSIA AND THE BALKAN" STATES 397

numerous and influential in the commission, and this led to
state intervention in the movement which has continued
in an increasing measure down to the present day. The
entering wedge was an appropriation of $3,600 out of the
Imperial Treasury to the Moscow Agricultural Association
for educational work. Next the provinces and districts sub-
vened cooperative societies, and many were formed through
these forced means, but as the mass of the farmers did not
join, the progress was artificial. The members were mainly
persons in comfortable circumstances who borrowed the cheap
money to lend at a profit to third parties. In 1888 as
many as 395 of these spoon-fed societies went to the wall.

But in spite of these failures cooperation took root, and in
1895 it was deemed advisable to enact a law to give it a
legal status. This law authorized the formation of coopera-
tive credit societies with and without shares, but forbade so-
cieties without share capital to receive deposits from out-
side sources. These were intended to serve as locals, while
societies with shares were designed as regional banks, but
this distinction was not observed in practice. The share
societies were organized and managed according to the
Schulze-Delitzsch principles and recruited their members
mostly from the cities, while the Eaiffeisen societies which
Longuinine and his followers had formed practically all
disappeared as soon as they were deprived of their main
source of outside capital, because the members themselves
were too poor to make deposits in sufficient volume for their
operations. Consequently the peasantry was left without a
credit system of its own.

An effort to remedy this situation was made in 1904 by
enacting a law on "small credit institutions." A smaU
credit institution, according to this law, is one which,
whether cooperative or not, fixes the maximum at $156 for
ordinary loans and at $520 for loans secured by mortgage
on grain. Special privileges were accorded institutions of
this kind, and they grew and spread very rapidly until 1910,
when Eussian legislation, having passed through its experi-
mental stages, finally culminated in a cooperative credit

398 EUEAL CEEDITS

law based on true principles. No new small credit institu-
tion has been formed since that year and although the,
4,809 still existing, with balance sheets showing $38,546,172,
loom large on paper, they are of no economic importance in
rural life and are in fact in liquidation.

The types of cooperative credit societies now in active
operation in Eussia are people's or Schulze-Delitzsch banks
and cooperative loan and savings societies. The main points
of difference between the two are that the latter have no
share capital and pay no dividends. In 1913 there were
3,300 people's banks in Eussia. The 3,019 which rendered
reports had 1,736,301 members. Their share capital
amounted to $23,662,575, special capital to $1,919,930, re-
serves to $3,574,910, deposits to $87,283,230, money bor-
rowed to $10,073,915, and outstanding loans to $109,193,390.
The great majority of their members were industrials, trades-
people and urban residents.

The cooperative savings and loan societies, on the other
hand, are all agricultural, but they conform in no sense of
the word to the Eaiffeisen type. The board of management
of every society is always paid, the liability of members
in the majority of cases is limited, and the size of the society
is large. The average membership is 607, the operations
often extend over large areas embracing 2,000 to 4,000
households, and the loans are never granted for longer than
a year. Nor do they teach religion, or as a rule make col-
lective purchases or sales for members. So the Eussian
rural cooperative savings and loan societies, instead of being
like Eaiffeisen's, are sui generis.

According to the law, each credit society must have at the
start a social fund of not less than $530, which may be cre-
ated either by donation, borrowed money or members' sub-
scriptions. This fund must never be allowed to fall below
its original amount, and must be increased each year by
40 per cent of the profits. Twenty per cent of the rest of the
profits go into the reserves. Although no dividends are per-
mitted, a portion of the remainder may be distributed as a
rebate among members, if so decided at their annual meet-

ETJSSIA AND THE BALKAN STATES 39»

ing. The assets left after dissolution of a society are de-
voted to some beneTolent object. If a society is formed
with capital, the size of the shares may be fixed at one or
two rubles (one ruble, 61% cents) up to a hundred or so
rubles payable by periodical instalments. But voting is per
head and not per share, so no matter how many shares a
member may be allowed to hold, he may cast but one ballot
at any election or on any resolution.

In 1913 the total number of savings and loan coopera-
tive societies in Eussia, excluding Finland, was 9,200. The
7,974 societies rendering reports had 4,867,734 members.
Their social funds amounted to $13,653,035, special funds ta
$2,148,125, reserves to $1,824,645, deposits to $60,997,630,
and borrowed money to $36,449,885. The outstanding loans
were $95,215,260. The interest on deposits was between
five and eight per cent. The interest on loans was high,
according to cooperative standards. In new societies it was
generally 13 per cent and the lowest rate was 10 per cent.
-This rather heavy rate is due to the lack of money in Eussia
and is considerably below what is exacted from farmers not-
belonging to cooperative societies.

Including Finland, there were in 1913 at least ISjSOO-
Eussian people's banks and cooperative savings and loan
societies, with a membership near to 8,000,000, and the foot-
ings of their balance sheets showed a combined amount of
$243,050,000. Very few of these concerns do collective buy-
ing and selling, but at least 1,670 of the rural societies have
erected and financed granaries for storing and marketing
wheat.

There are 11 federations of cooperative credit societies
and banks in Eussia. They have not the right of compul-
sory audit or supervision over their adherents and conse-
quently do not exercise much influence upon their affairs.
The greatest directing power over the societies is the Govern-
ment itself. All societies not belonging to the Schnlze-
Delitzsch federations have been welded together into a
highly centralized system under the control of the Imperial
Government, the natural corollary of the state aid it enjoys.

400 ETJEAL CEEDITS

This control is exercised through the Imperial bank of issue,
the Bank of Eussia, for which an agricultural programme
■was inaugurated as early as 1896. The law of 1904 pur-
suant to this programme provided for the creation of a
■General Board for Small Credit within the Bank of Eussia.

The president of this Board is selected from among the
■directors of the Bank, and its executive committee consists
of this president, the vice-presidents, representatives of the
Imperial auditor's office and of the Departments of Agricul-
"ture, the Interior and the Treasury, and a few other public
officials. The Board is charged with the distribution of sub-
sidies, and its duties are to audit and supervise small credit
institutions, cooperative societies included, and to adjust the
Telations between them and the Bank of Eussia. The Board
lias a right to the services of the Bank's inspectors, and
through these semi-public officers and provincial or district
■committees, it promotes qpoperative and people's credit and
sees that all the institutions under its Jurisdiction conduct
themselves in strict conformity with the laws. By a law
of 1910 the savings banks were required each year to invest
ien per cent of the increase of their deposits over the pre-
ceding year in loans to the institutions for small credit.
These sums are distributed by this Board among the coop-
erative credit societies for enlarging their social funds.

Through this machinery the Bank of Eussia has loaned
$57,514,170 to 12,237 cooperative credit societies (1913).
But this is only a small portion of what the Bank of Eussia
las invested in agricultural loans. The Bank has assisted
agriculture, especially for moving grain, since 1885 by ex-
tending credit on growing crops or on warrants or waybills
of grain in storage or in transit, to the farmers directly or
through their credit institutions or the railroads. In 1911
13 per cent of its loan and discount business was done on this
security and six per cent of the value of the grain crop of
the whole country was mortgaged to it in this way. The
credit ran for one year or under at an average of 4.5 per
cent interest without any commissions or charges for travel-
ing expenses. The Bank of Eussia also makes loans on real

EUSSIA AND THE BALKAN STATES 401

estate and on the farmers' personal paper for implements-
and machines.

Not only has Russia surpassed all European nations in
expenditures and concessions for creating small holdings for
peasants, but she has now taken foremost rank in providing'
credit facilities for farmers both large and small. In 1909
Eussia enacted a law for the erection of 84 public granaries;
to be completed by 1916. Eight of these were in operation
in 1913j constructed of reinforced concrete in American
style. The farmers have no difficulty in borrowing money at
cheap rates against receipts issued by these granaries. The
Eussian Government time and again has also made heavy
appropriations to succor farmers in regions devastated by
droughts or revolutions. Some notable instances occurred
during the bad crops of 1898, 1906 and 1911. In these years
public funds were placed at the disposal of the Minister of
the Interior, who employed them in purchasing seed and
other agricultural necessities or in making loans to the
provinces and districts for such purchases to be distributed
among suffering farmers. These advances were intended to
be provisional but only a few of them have been repaid.
Less than two per cent of the $395,820,254 thus lent between
1891 and 1912 has been recovered. The Government occa-
sionally cancels outstanding claims and pockets the loss.

The provinces and other territorial divisions of Eussia
have been no less active than the Imperial Government in
providing credit facilities for farmers. At the beginning of
1912 there were 1,405 county credit and savings banks
founded by villages or groups of tenant farmers. A law of
1905 authorizes the county to establish these banks on the
vote of a two-thirds majority of the electors concerned. In
addition there were seven federations embracing 105 credit
organizations and also 107 zemstvo people's banks. The
latter are simply departments of the zemstvos (districts),
without members, but established upon the vote of a two-
thirds' majority of the electors. Over one-half of their busi-
ness is transacted with cooperative credit societies, and com-
prises both long-term loans for creating or enlarging their

402 EUEAL CEEDITS

capital and short-term loans for supplying them with work-
ing funds. The interest rate is between seven and eight
per cent for societies and between nine and 12 per cent for
individuals. Some of the zemstvo banks maintain stores for
the sale on credit of fertilizers, farm implements and metal
loofing.

All these regional institutions use cooperative methods.
Besides those mentioned there were 3,792 credit establish-
ments owned, managed, controlled and financed by various
local authorities. Among these are savings and subsidy
banks, banks for ex-serfs of the public domains, village banks
operating with revenues obtained from liquor licenses, etc.,
rural banks formed by popular vote of one or more counties,
communal savings banks, orphans' banks of which the fimds
are lent to farmers, and special banks for Poland and for
certain natives.

State aid, indeed, is playing the most important part in
the organization of cooperative credit in Eussia. But this
intervention does not extend to giving special privileges or
free grants of money except in event of extreme necessity.
It rests at making loans on reasonable terms and interest
rates. The cooperatives understand this to be the case, and
they have already established two central banks to take the
place of the Bank of Eussia and the General Board for Small
Credit when the temporary aid which the credit societies
are now enjoying shall be vidthdrawn. The first of these cen-
tral institutions is the Warsaw Cooperative Bank founded
in 1910. At its foundation 1,301 of its shares were sub-
scribed by private individuals, 1,717 by establishments of
popular credit, 611 by 72 people's banks, 193 by four indus-
trial credit banks, 97 by 17 agricultural associations, 44 by
13 distributive cooperative societies, and 37 by various other
societies. In 1912, 3,000 more shares were issued and im-
mediately subscribed, and the capital now stands at $901,250.

The second is the Moscow People's Bank founded in 1911.
It did not have to resort to a public issue of shares. Its
first 3,822 shares were taken up as follows : 80 by 23 estab-
lishments of popular credit; 1,399 by 701 cooperative credit

EUSSIA AND THE BALKAN STATES 403

societies; 678 by 290 people's banks; 63 by 13 urban credit
and savings societies; 31 by four federations of cooperative
credit; 57 by two federations of artel creameries; 81 by 42
cooperative creameries; 200 by the Muscovite Union of Dis-
tributive Cooperative Societies; 491 by 227 distributive co-
operative societies; 53 by 18 agricultural cooperative socie-
ties; 38 by nine credit and mutual aid societies; 35 by nine
exchange artels; four by two cooperative associations; eight
by four groups of popular credit establishments; and 605 by
160 individual cooperatives. In 1913 it issued 4,000 new
shares, and its paid-up capital is now $515,000.

The Grand Duchy of Finland, unlike the other provinces
of Eussia, is autonomous as regards internal affairs. Co-
operation has progressed there independently of the move-
ment in the rest of the Empire. This northwestern extremity
of Eussia is a vast, marshy plateau with a cold, moist climate.
Eighty per cent of its 3,600,000 inhabitants are farmers and
foresters, who 14 years ago were poor and ignorani and
understood very little about modern methods of cultivation.

This backward condition had long been viewed with con-
cern by the educated portion of the population. In 1890
some magazine articles and pamphlets appeared in the Fin-
nish and Swedish languages on English and Danish coopera-
tion and the Eaiffeisen cooperative credit societies. These
awakened widespread interest, and in 1899 some college pro-
fessors and lawyers formed an association for introducing
cooperation into Finland. In the foUovring year they had
a law passed on cooperation which went into effect in 1901,
and thereupon they started a campaign for cooperation which
has continued with increasing energy to the present. This
propagandist association is now composed of over 1,000 of the
best citizens of Finland, and is maintained by private con-
tributions and the sales of periodicals which it publishes.
But its greatest asset is the enthusiastic and voluntary sup-
port of young professors of the agricultural and other col-
leges who spend their vacations in lecturing and organiza-
tion work. Since the Finnish farmers seem to lack the nec-
essary initiative to take matters in their own hands, all

404 EUEAL CEEDITS

inspiration has emanated from this one association, and hence
the cooperative system which is being developed has become
highly centralized and every society so far formed has
joined it.

Butter-maktng and collective buying and selling were the
first subjects to which this central association directed its
attention. The next was credit, and in 1902, upon learn-
ing that the Grand Duke favored the project, a few associates
founded a bank under the name of the "Central Cooperative
Credit Establishment." These associates subscribed for all
the capital of $60,000 on the understanding that they would
sell their shares to local credit societies whenever the latter
cared to buy. The state of Finland advanced $800,000 as a
working fund and granted an annual subsidy of $4,000 for
ten years. A new advance of $1,000,000 has been asked for.
The bank is a private institution managed by six directors
and an executive council of which the president is selected as
the head.

The Central Cooperative Credit Establishment extends
credit not to individuals but only to societies in proportion
to the amount of stock they hold. Its loans are made on
open accounts, against which adherents may draw up to the
maximum allowed for any sums large or small, and they may
make repayments without giving any previous notice, that is,
a cash credit business is carried on. The size of loans which
have been granted runs from $200 to $12,000. The interest
Tate is between four and five per cent.

In 1913 there were about 2,000 local cooperative societies
with nearly 250,000 members in Finland. The credit so-
cieties are similar to those of the Eussian system in that they
have no shares and pay no dividends. They are not per-
mitted under the law to take deposits from outsiders, and
inasmuch as members are usually too poor to make deposits
in quantity, the societies have to depend upon the Central
Establishment. The money borrowed from this institution is
loaned out to members at 5.5 and six per cent. Near the
Russian border a commission of one-half of one per cent to
two per cent is added.

EUSSIA AND THE BALKAN STATES 405

Cooperation appeared in the cities of Eoumania about
1880 in the form of people's banks, but it did not make much
headway until after 1895 when it began to be used by the
farmers. By 1902 there were 700 cooperative credit associa-
tions with 59,618 members. This evidence of strength and
efficacy caused Eoumania the next year to enact a law on
cooperation and also to found the Central Bank for People's
Banks and Cooperative Societies, with a capital of $4,000,000
supplied by the state.

In 1911 there were 3,750 cooperative banks with 510,118
members in Eoumania. Their capital was $15,361,307, of
which $13,450,648 had been paid in. The deposits were
$2,558,604, and outstanding loans $19,593,000. The law
allows 25 persons to form a bank, but the average member-
ship was 185. Shares in the same bank may be unequal, and
they run from $4 up to $1,000. Twenty or 30 of the banks
impose unlimited liability, but all the rest limit the liability
of members to the amount of their subscriptions. Each
bank confines itself to a village or a city, and it receives
deposits from and grants loans to any person withia its area.
In fact, about one-third of the loans are granted to non-
members. Members, however, are forbidden to deal with
any other bank. A very large number of the banks do col-
lective buying and selling. Much of the aid secured from the
state is used in making loans to members.

The banks do not accord credit for a longer period ia the
first instance than six or nine months. If a borrower needs
more time a renewal may be granted, but never for over
18 months, unless the shareholders at a regular meeting
decide otherwise. Collateral and chattel mortgages are fre-
quently taken, but the preferred security is the indorsement
of one or two responsible friends. The interest charged non-
members is nine or 13 per cent. Members obtain credit at a
few points lower.

The management of a bank is entrusted to an executive
coimcil of six or nine members elected for three years, one-
third of whom retire annually. In the small societies the
council serves without pay. In the larger ones, 15 per cent of

406 EUEAL CEEDITS

tlie year's profits is distributed among its members and used
for meeting administrative expenses. The highest dividend
is ten per cent. The surplus is written off to the reserves.
This fund, which in 1912 amounted to $3,000,000, must be
invested in government bonds.

There are 20 federations to which 400 cooperative banks
belong, but their central institution is still the Central Bank
for People's Banks and Cooperative Societies whose manage-
ment is controlled by the state. This Bank exercises a strict
supervision over the local banks and requires them to con-
form with its methods of doing business but in other respects
gives them entire freedom of action. It advances money to
them at four or five per cent.

State aid is a dominant feature of the agricultural credit
system of Eoumania. Besides the Central Bank, there are
three other state banks subsidized and managed by the
Government. These were called into existence with the ob-
ject of furnishing persons engaged in agriculture with the
necessary means to buy and equip farms on the public domain
and on estates of large landowners, which have been ordered
to be sold and subdivided for small holdings. Their busi-
ness has thus a special character and relates primarily to
real estate. The agricultural section of one of them, how-
ever, is very active in according short-term credit. This is
the Agricultural Credit Bank established in 1899, before the
state had provided cooperation with its own central institu-
tion. The $4,000,000 which, like its successor, it received
from the state, has been placed at the disposal of the coop-
erative credit associations for discounting the bills and notes
of their members and customers. The Agricultural Credit
Bank has been charged also with the duty of collecting the
$7,027,668 which the state advanced to the farmers for food
and grain during the famine in 1904 and 1905. Its officers,
moreover, are identical with those of the Agricultural Credit
Bank, which was organized in 1906 with a capital of $400,000
to be used in loans on easy terms to vintners for re-
storing and replanting vineyards damaged by the ravages of
phylloxera.

EUSSIA AND THE BALKAN STATES 407

The first cooperative bank in Servia -vras foimded by one
Avramovitch at Vranovo ia the Danube Department on
March 29, 1894. By 1911 there were ia existence 907 banks.
The reports of 536 showed 37,469 members and a business of
$3,234,838. These banks are all of the Eaiffeisen type with
some slight changes due to local conditions.

The territory of a bank is confined to an area embracing
1,000 to 3,000 inhabitants. There is very little distinction
between shares and deposits. The payments made on shares
are considered as permanent savings, while deposits are
looked upon as funds for daily use, placed with the bank
simply for safekefeping, after the fashion adopted by Mr.
Desjardins for 'Quebec, described in a subsequent chapter.
The share is an obligation to pay monthly sums during a
certain period, usually ten or 30 cents a month for two, three
or five years. After they are fully paid up they are redeem-
able with 4% or six per cent interest, as fixed at the annual
meeting of the members. The payments on these shares con-
stitute the social capital of the bank, and there is no regula-
tion as to the number of shares which may be held ia one
hand, nor is there need of any, since voting is done not per
share but per member. No dividends are distributed. What-
ever profits remain after setting aside the amounts deter-
mined for the reserves are turned over to the central bank.
Reserves also would be similarly disposed of in the event of
dissolution.

A lower rate of interest is given on deposits than on
the savings used in buying shares, but every effort is made
to attract deposits. Pennies are received, and a special
service has been opened in most of the banks for school
children whose mites are collected by means of stamps pur-
chased and pasted on cards. Many of the banks sell and
buy farm supplies and products, while others leave this busi-
ness to cooperative societies operating alongside of them
and organized for the purpose through their financial assist-
ance. No farmer can become a member of a bank unless he
is the head of a family. He may not withdraw his savings
as long as he has a debt unpaid in the bank, but must use

^08 ETJEAL CEEDITS

them for its gradual extinction. The maximum maturity for
loans is two years, and it cannot be extended except in case
of bad crops, when a renewal of only six months is permitted.

A central bank was established for the local banks in
Servia at the very beginning of the cooperative movement.
This bank is a joint-stock company, and its first shares were
subscribed by the Danube Department, seven districts thereof,
133 communes, and about 500 individuals. The shares of
the central bank are $30 each, and may be paid for in in-
stalments. No local bank may hold over 100 shares, but
within this limit each local bank is bound to subscribe to
as many shares as the amount of the credit opened for it is a
multiple of $300. The state advanced $400,000 to the cen-
tral bank without interest but takes no part in its manage-
ment. The central bank, besides acting as the financial
head and clearing house of the cooperative societies, buys
and sells to them either for cash or on credit, seed, fertilizer,
farm implements and machinery for resale to their members.
Four per cent interest is allowed on shares and on deposits.
The surplus goes into the reserve. The interest on money
borrowed by adherents of the central bank is so fixed that
the individual farmers obtain loans from their local banks
at 4% to six per cent per annum.

A national federation called the General Union, with
headquarters at Belgrade, is the supreme authority within
this agricultural cooperative credit system of Servia. The
central bank, the local banks and all other rural cooperative
societies must by the law become members of the Union,
which is charged with the duty of auditing their accounts
and supervising their affairs. It is also the chief organ of
propaganda and guidance of cooperation in the kingdom. It
is supported by contributions of four cents a month per
head from all members of adhering organizations.

Servia has public granaries in addition to this coopera-
tive credit system. They were originally established when the
country was under Turkish rule for receiving grain turned in
for taxes. They are now used for storage of cereals for
supplying farmers vrith food and seed during bad times. They

EUSSIA AND THE BALKAlN STATES 409

are kept filled by a law which requires farmers to pay a
small portion of their taxes in kind each year. In return
for this the farmers are entitled to supplies in the event of
loss of crops from drought, inundation, hail or iire. But in
place of giving so many bushels of grain, the Government
now grants a loan which must be repaid after the next
harvest. The granaries may sell their stores and convert
them into cash, but the proceeds must be deposited in the
public banks if not invested in farm loans. Grain is usually
the security demanded for these loans, and the granaries
may mingle it without regard from whom it comes. The
granaries are managed by the communes in which they
are located, subject to the supervision of the Minister of
Agriculture.

The organization of agricultural credit in Bulgaria began
"with a law enacted by the Ottoman Government in 1865,
which was based on a project formulated several years pre-
viously by Midhat Pasha who was then the Governor, under
the Turkish dominion, of what now corresponds to the north-
ern portion of the present kingdom.

This law compelled the farmers to join banks which
were created for them in the principal cities of each dis-
trict. The banks were managed by two Mohammedan and
two Christian cashiers, and the presence of the four was
necessary for the validity of any act. Working funds were
raised by a tax levied on the farmers themselves. This tax
could be paid in farm produce. Indeed, the farmers were too
poor to pay in any other way, since they had been giving 30 to
100 per cent interest on loans and were in the clutches of usur-
ers. When a bank accumulated $1,000 it was authorized to be-
gin business. No dividends were declared. The profits went by
one-third to works of public utility and by two-thirds to in-
crease the bank's capital.

The banks were enjoined also to receive repayments of
their loans in kind, and in consequence at the start they
resembled country stores more than financial institutions.
However, they reduced interest rates to nine or ten per cent

410 ETJEAL CEEDITS

and were doing esceillent service by 1877, ■when the Turco-
Eussian war broke out and gave them a bad setback. Most
of them were plundered of all their funds and records by
the retreating Turks, and borrowers refused to pay up after
this destruction of the evidence of their debts. The loss
was recouped by the issue of bonds.

The Eussian Government upon coming into control of
the country proceeded to make some changes in these banks,
by confining them exclusively to farmers, placing them under
the direction of- the Minister of Agriculture, and giving
them a few cooperative features by allowing members of
each bank to elect a committee of nine to manage it in
conjunction with a cashier and comptroller appointed by the
Minister of Agriculture. This was the situation of the banks
when Bulgaria became free. The independent state, always
strongly inclined to centralism and bureaucracy, in 1894
consolidated all existing banks and utilized their funds to
form one big central bank under the name of the Central Ag-
ricultural Bank of Bulgaria, which now has 85 branches and
75 agencies.

The consolidation gave the Central Agricultural Bank a
capital of $8,000,000. The chief object of this institution is
to assist farmers, but it may grant loans to any other per-
sons up to the amount of deposits made by them. It pos-
sesses the usual banking powers and the right to issue deben-
tures guaranteed by the state. Its credit is accorded to
farmers individually and to rural cooperative societies, and
it takes as security mortgages on real estate or growing crops,
live stock or produce. Short-term loans may not exceed
$4,000, nor long-term loans of two to 20 years, $20,000.
Although this central bank, theoretically at least, is owned
by the towns and villages in proportion to the quotas which
their respective banks contributed towards its foundation,
they have no voice in its administration. It is managed by
a president and four directors appointed by the Crown. No
dividends are declared. The profits are disposed of as fol-
lows: 13 per cent is set aside each year to meet possible
losses; three per cent as a bonus to officials and employees;

EUSSIA AND THE BALKAN" STATES 411'

35 per cent for the reserve ; 35 per cent to increase the work-
ing funds; and 25 per cent to the advancement of agri-
culture.

The scope of the Central Agricultural Bank is national,
and it applies its resources especially to develop rural coop-
eration. To this end it requires its stafE to study the sub-
ject of cooperation, while it gratuitously instructs school
teachers and priests in the elementary principles of banking
so that they may become competent organizers and managers
of rural banks. In 1910 its capital was $8,569,080, reserves
$2,569,199, and deposits and accounts $11,138,277. Its total
business was $224,888,416, of which $6,245,273 was real-
estate mortgage loans made ia part from the proceeds of
foreign sales of its debentures. The profits were $2,573,689.
The bank is exempted from taxes and has the free use of the
mails and public telegraph.

The educational work and financial assistance of the
Central Agricultural Bank of Bulgaria has given a rapid de-
velopment to rural credit societies. They have all taken a
modified EaifiEeisen form. The first was started by Kardjew,
an instructor in an agricultural school at Eustchuk. The
success of this society induced the teachers of the county
schools to hold a convention a couple of years later, after
which the movement for cooperation began in earnest. In
1910 there were 775 EaifEeisen credit societies with more
than 40,000 members, with assets whose combined value ex-
ceeded $28,282,870. The loans for the year amounted to
about $3,000,000, supplied in part from the Central Agricul-
tural Bank. The societies are nearly all united to one or other
of two federations, which are supported by contributions of ad-
herents and subsidies from the Department of Agriculture.

Under the law of 1907 these federations had supervision
over rural credit societies jointly with the Central Agricul-
tural Bank. This troublesome double supervision, however,
no longer exists. In 1910 the Bidgarian Government, in exe-
cution of a plan it had long had in view, created a new central
establishment, and gave to it the exclusive right of super-
vising the societies, made it their financial head, and en-

412 EUEAL CEEDITS

trusted it with the duty of directing and developing coop-
eration for all its varied purposes in town as well as country
throughout the kingdom.

This Central Cooperative Bank is a public institution, and
has no duplicate in any other nation. The capital stock
is without fixed limit. The Central Agricultural Bank and
the Ifational Bank were forced to furnish $1,000,000 on which
it started and are compelled to contribute a certain portion
of their annual profits to the increase of its capital. These
two institutions are called foundation members. They are al-
lowed dividends of four per cent, but must serve gratuitously
as correspondents of the Central Cooperative Bank and act
as its representatives in all legal business. They are liable
on its engagements up to the amount of their contributions.
Cooperative associations and federations must subscribe to
one share of $30 upon joining. They are called ordinary
members and to them alone may the bank extend credit.
Their shares may be paid for by instalments. The shares
draw five per cent dividends and carry a liability up to five
times their face value. No other concerns or individuals
may be members.

The administration of this Central Cooperative Bank
consists of a board of management, a superior council, an
auditing committee, and the members when regularly as-
sembled. The first is composed of one manager and two
regents. They have the character of public functionaries,
are appointed by the Crown, and can be removed only by
Parliament. The second is composed of seven members,
two appointed by the National Bank and Central Agricul-
tural Bank, three by the affiliated societies, one by the Min-
ister of Commerce and Agriculture, and one by the Min-
ister of Finance. Their term of office is one year. Their
compensation is a per diem allowance for attendance.

The auditing committee is composed of five members,
one appointed by the Minister of Finance, two by the Na-
tional Bank and Central Agricultural Bank, and two by the
ordinary members. Their term is three years. The auditors
act as field inspectors, guard the bank against irregular!-

EUSSIA AND THE BALKAN STATES 413

ties, and prepare its financial statement and annual ac-
counts. The meeting of the members must be held once
a year, but they can vote on no subject except the election
of oflBcers. The supreme control is lodged with the Minister
of Agriculture, who may veto all decisions and stop any opera-
tion or transaction of which he disapproves.

The Central Cooperative Bank of Bulgaria may issue
debentures redeemable by lot, but it is forbidden to make
real-estate loans or to do any business with outsiders except
to take their money on deposit. It is authorized to own and
operate warehouses for the storage of farm produce, and also
to give financial aid to mutual societies of insurance against
haU and cattle losses. Ordinary members may be expelled
but cannot retire except by consent obtained at a meeting
of the shareholders. Since 1911, when it began business,
the Bank has been exempted from stamp duties and certain,
other taxes and has enjoyed the free use of the postal and tele-
graphic services.

A Eaiffeisen cooperative credit society was opened in
European Turkey by some Servian inhabitants near Con-
stantinople in April, 1907. About the same time a similar
society was started in Montenegro. Neither was successful,
and there is not known to be any cooperative credit society
of any sort in that part of European Turkey now within
the kingdom of Albania. No effort to start a cooperative
credit movement has been made in Greece.

In Cjrprus a few years ago there were 22 credit societies
of the Eaiffeisen type, all started and fostered by a govern-
ment ofBcial. They dissolved when this ofBcial changed his
post and left nobody to direct their administration, but
during their short existience they collected in the district of
Paphos, in which they were located, more savings than
were collected by the Public Savings Bank in the entire island
within five years.

The cooperative credit movement was revived in Cyprus
recently by the Savings Bank of Nicosia. This is a joint-
stock company with shares of $50 each. The majority of its

414 EUKAL CEBDITS

2,000 shareholders are working men and women, mostly
servants and weavers. In December, 1909, Mr. Economides,
the president of this bank, and William Bevan of the Agri-
cultural Department of the island fonnded a new credit so-
ciety in the village of Lefkonico. It is of the EaifEeisen type
but exacts an entrance fee of about 50 cents from each
member. This has been followed by a few other societies,
aU financially supported and supervised by the Bank. They
pay interest at the rate of eight per cent for deposits and
charge borrowers ten per cent.

Cooperative credit is practised in the Jewish farm col-
onies in Palestine. The first of these colonies, composed of
refugees from Eussia and followers of the Zionist movement,
was founded in 1882 on a tract of land six miles south of
Jaffa on the road to Gaza. Its success led to the formation
of other colonies, all of which Baron de Eothschild put under
his protection. He named one colony Zichron-Jaeob after
his father, and another Mazkeret-Bathyra after his mother.
He planted the eucalyptus to keep off the malaria, induced
the colonists to dig wine cellars and grow vines and fruit
trees, and spent many hundreds of thousands of dollars in
these philanthropic ventures for his coreligionists.

There are now about 9,500 Jewish immigrant farmers
with their descendants in Palestine. They make wine, cognac
and attar of roses, and raise olives, almonds, oranges and
figs, some wheat, barley, cotton and other staple agricul-
tural products. The colonists apply cooperation in the manu-
facture and marketing of their commodities, and through
the associations which they have formed for these purposes
frequently extend credit to members.

CHAPTER XXIX

SPAIN AKD POETTTGAIi

PositoB. — ^Need of Credit. — Operation of Positos. — ^Recent Credit
Societies. — The Leo XIII, the Bank of Spain and the Mortgage
Bank. — Government Help for Cooperative Societies. — ^Misericor-
dias and CeUeiros Communs of Portugal. — Modem Agricul-
tural Mutual Credit System. — ^Agricultural Credit Board and
Bank of Portugal. — ^Republics of Andorra and San Marino. —
Monaco and Liechtenstein.

CooPEEATiVE credit is gaining a foothold in Spain, but
the ancient positos are still the leading institutions for ex-
tending financial aid to the Spanish farmers. The positos
are public granaries. The oldest date back to the fifteenth
century. They were all established by the Government or by
private beneficence for the same purpose which prompted
Pharaoh to store up corn during the seven fat years for use
during the ensuing famine.

Spain has been in continual decline since the close of the
Middle Ages. The decline was stayed for a time by the
gold plundered from newly discovered countries in Central
and South America, but when this source of revenue was
taken away, the downward trend was resumed and Spain
lost by degrees her former strength and glory. Today her
population is barely more than one-half of what it was in
the days of the Caesars. This decadence is due in large
measure to the fact that vast areas of her lands have been
worn out by generations of unscientific farming or swept
barren by torrents pouring down from mountain ranges long
since deprived of their forests. At present Spain is in great
want of money both for the short term needed for agri-
cultural industries and for the long term required for re-

415

416 EUEAL CEEDITS

claiming the upper valleys by irrigation and the marshy
coastal regions by drainage and embankments and for ena-
bling the farmers to acquire title to the land they cultivate.

An effort was made in 1873 to create credit facilities for
the latter objects by establishing a mortgage bank with an
exclusive monopoly of issuing debentures, under a president
appointed by the Crown. It has not done much good. Its
outstanding loans at the beginning of 1912 amounted to
$30,757,604, a relatively unimportant figure in view of its
privileges and opportimities and quite insignificant when
compared with what ought to be accomplished. The larger
proportion of these loans was on urban properties, and the
average size of loans was $6,880, showing that nothiag had
been done except for the large or medium-sized estates. After
the establishment of this mortgage bank several institutions
were founded for lending small sums for short terms, and
although they have met with better success, the positos yet
continue to be the main stand-by of the small farmers, just
as they were often their last resource in the near as well as
the distant past when the effects of denudation and exhaustion
of the soil and improvident farming and living began to
manifest themselves.

Originally the practice was to fill the positos or granaries
with the surplus of good years to be doled out during dearths
and thus steady prices and tide over the needy to the nest
crop. But the grain had to be changed at intervals to pre-
vent its spoiling, and this led to the adoption of the idea
of the Portuguese celleiros, of lending seed to farmers to be
returned with a bonus at the end of the harvest, and finally
of selling whatever surplus of grain might be on hand and
making cash loans with the proceeds. The constitution and
method of management of the positos have undergone vari-
ous changes in the course of time. At present they are sub-
ject to the control of the Minister of Agriculture, exercised
through a commissioner appointed for five years by the
Crown.

Eecently the immovable property of the positos has been
ordered sold or converted into liquid assets, while their pow-

SPAIN AND POETUGAL 417

ers and objects have been enlarged so as to include the re-
ceiving of deposits, the purchase of live stock and agricul-
tural machines for sale or hire, and the granting of loans
ia cash for terms adjusted to the necessities or convenience
of the farmers. In fact the positos have been so modernized
by law during the last few years that they have become rural
banks, and the Government is actively engaged in transform-
ing them into banks and increasing their number. But they
are still managed as of old by the communal councils, to
■which is awarded one-sixth of one per cent of the interest on
the loans as compensation for the personal liability imposed
upon them for granting the loans.

New positos may be created by the public authorities upon
proof of the need for them, of the sufficiency of their endow-
ment or capital, and of their ability to carry out the under-
takings laid down in the plans of their scope of action sub-
mitted. Borrowers have no voice in the creation of the
positos nor in the conduct of their afEairs, so these institu-
tions have no cooperative features. There were 3,529 positos
in Spain at the beginning of 1913, with outstanding loans
amounting to $15,394,968 and total assets of $19,085,980.
The size of the average loan was $G4 and the interest rate
six per cent a year, which indicates that they have become
important factors in small credit.

The introduction of cooperative credit in Spain occurred
with the opening of a Eaiffeisen bank on June 30, 1901,
at Amusco, in the province of Valencia, by the abbot Valentin
Gomez, whose enthusiasm for rural cooperative credit was
aroused to action by a resolution passed in its favor at a
Catholic convention held in 1899. The prebend Anacleto
Orejon founded a similar bank in the same province on March
30, 1902. Shortly afterwards Louis Chaves founded four
others in the province of Zamora. Then came the law of
1906 on agricultural associations and the law of 1908 exempt-
ing such associations which had credit for their objects or
one of their objects from certain taxes. An energetic move-
ment followed, which assumed the syndical character of the
French cooperative credit system, but was impelled in the

418 EUEAL CEEDITS

main by the Catholic church. At the beginning of 1913 there
were 127 pure Catholic rural cooperative credit societies,
and 1,154 syndicais. Catholic and undenomiaational com-
bined, of which 638 were banks or had credit for one of
their objects.

The credit societies in the province of Zamora impose
unlimited liability. Members make no contributions of any
kind except deposits. The working funds are obtained from
donations or borrowed money. The only paid officer or em-
ployee is the cashier or accountant. The cooperative credit
societies in some of the other provinces have a capital com-
posed of public subventions and membership shares of $2,
each payable in monthly instalments of five cents.

Many of the credit societies besides doing a loan and
savings business supply their members on credit with seed,
fertilizer and other requirements for agricultural work and
the raising of live stock, and furthermore take produce in
storage for safekeeping or collective selling. Members must
furnish lists of all property owned by them and their wives.
Their standing is determined and the maximum fixed for
their credit by these lists. Security is always required for
the loans. Deposits as low as a penny at a time are received,
but they do not draw interest unless profitable use can be
found for them.

Cooperative credit societies are not yet sufficiently num-
erous in Spain for the organization of a federation or a
central institution by and for themselves. But there exists
the Leo XIII, a bank of a religious character founded by
the Archbishop of Zaragoza for the sole purpose of assist-
ing the agricultural and industrial classes, which makes ad-
vances either in loans or discounts to the rural credit so-
cieties at four and five per cent and gives three per cent on
their deposits. The Bank of Spain and the Mortgage Bank
also accommodate the rural credit societies but to a less extent
and at somewhat higher interest than the Leo XIII. The
facilities accorded by these three large banks, however, are
fax from sufficient, and the Minister of Agriculture has
presented a bill to the Cortes for the establishment of the

SPAIN AND POETUGAL 419

National Agricultural Credit Institute. This bank, if
formed, will be placed under the control of the Government
and endowed with a capital of $200,000 and a working fund
of $10,000,000 raised by bond issues. The proposed bank
will audit and supervise the positos and rural credit societies,
make loans at four per cent, and carry on propaganda for the
diffusion of cooperative credit. Another project also has
been presented to the Cortes for a private agricultural bank
with a capital stock of $30,000,000.

The law of 1906 was the first of its kind enacted in Spain.
It allows associations and combiaations of associations to
be formed for all agricultural purposes, specifies their rights
and obKgations, and lays down rules for their organization
and management. It enumerates the various tax exemptions
which they may enjoy, and provides state aid to encourage
their development along certain lines.

The Spanish Government has itself started a number of
cooperative societies in carrying out its policy and plans of
settling xmemployed families in the places where they were
born so as to check emigration and repeople the country
districts. These families are required to form themselves
into cooperative societies before they may receive the sub-
ventions which the state has appropriated for this home col-
onization. These subventions may be used for the purchase
of farm equipment and even for buying food and clothing
to keep the families alive until crops are harvested, but only
on condition that they render themselves jointly and sever-
ally liable to the state through cooperation for the money
advanced to any one of them.

In Portugal there is now a national agricultural coop-
erative credit system aided by the state and evolved along the
lines of French syndicalism. But imtil this system came
into existence the Portuguese farmers had no place to go
for cheap and easy loans except the misericordias and celleiros
communs, whose funds were far from being sufficient for their
purpose.

The misericordias are benevolent institutions whose ob-

420 EUEAL CEEDITS

jeet is to succor the poor, the sick and prisoners worthy of
help but too proud to beg. Their capital is composed of
contributions of members, usually rich or well-to-do, and do-
nations and legacies. The first was founded by Queen
Donna Eleonora at Lisbon in 1498, and its charitable ob-
jects included the building of hospitals, the care of orphans,
the freeing of slaves, and the giving of dowries to young
women in order to enable them to marry. As numerous
other misericordias were formed and as their funds in-
creased, authority was granted them to make loans on mort-
gage to clear lands and also to establish credit banks to
make loans for agriexdtural purposes. They were authorized
also, however, to make loans to industry and commerce, and
these being more profitable, they eventually ignored agri-
culture. At present there are 149 misericordias, and their
combined capital is only about $3,053,383.

The celleiros communs are similar to the Spanish positos
and the Italian monti frumentarii. The first celleiros was
founded by King Sebastian in 1576 with the object of pro-
viding farmers with seed during the dearth of that year.
A few more were founded by royal munificence and others
by municipalities, parishes and private individuals. Their
source of revenue was the income from donations and lega-
cies and later on from taxes and compulsory contributions of
grain from peasants. Originally the celleiros were man-
aged according to the decision of their founders and were
subject to their unrestricted control, but in 1852 they were
all reorganized by law, converted into rural banks and placed
imder the management of local public authorities. They
were authorized to erect warehouses and grain elevators and
to do a warehouse business, and they were granted tas ex-
emptions and special privileges with the view of encouraging
them to aid agriculture. But they were not successful, and
their number gradually declined until in 1911 there re-
mained only 14, with $128,288 of combined capital, of the 52
celleiros which existed in 1852.

These ancient institutions were completely eliminated
from agriculture in 1911 when a law was enacted for the

SPAIN AND POETUGAL 421

establishment of an agricultural mutual credit system. This
law decreed the abolishment of the celleiros, ordered their
funds to be turned over to the system, and furthermore ar-
ranged to give so much assistance to the new agricultural
banks that there is now neither use nor opportunity for any
other kind. The present head of this system is the Agri-
cultural Credit Board, a bureau in the Department of Agri-
culture, composed of four members appointed by the Gov-
ernment and three others elected by the mutual banks and
approved by the Government. This Board is a temporary
body which will be dissolved as soon as the system grows
large enough to establish a central bank to supersede it. But
for the time beiag the Board has entire control over the
system, has been assigned the duty of fostering its develop-
ment, and is entrusted with the audit and supervision of the
banks and with the distribution of the subsidies granted for
their support.

The subsidies for this system come through the Bank of
Portugal. The Government requires this bank of issue to
open an account at its headquarters and branches in favor
of the Agricultural Credit Board. The account is guaran-
teed by the state and its extent is determined by contracts
executed by virtue of law between the Government and the
Bank. The amount was put at $1,500,000 the first year.
The business transacted by the Bank of Portugal with the
Board and the agricultural mutual credit banks is done
without charge or profit, the sole compensation being one-
fourth of one per cent on the total amount of the current
account in each bank as shown by weekly settlements. The
transfer of funds from the cities in which the branches of
the Bank of Portugal are located to the places where the
agricultural mutual credit banks are situated is made through
the postofBce by registered mail, the agricultural mutual
credit banks giving duplicate receipts indicating the sum re-
ceived, which are handed to the postman. Payments may be
remitted in the same way.

This Portuguese agricultural mutual credit system can-
not distribute the subsidies obtained from the state to any and

423 ETJEAL CEEDITS

all classes of farmers. The law distinctly states that the
only banks which may belong to the system are those formed
by members of agricxdtural syndicats or of agricultural pro-
fessional associations. The law defines such an association to
be one composed only of farmers or of farmers and other
persons exercising industries or callings allied to agricul-
ture. Thus in order to become a member and borrower of
an agricultural mutual credit bank, the Portuguese farmer
must prove not only that he is actually and directly culti-
vating the soil but also that he belongs to an agricultural
association in the locality. Furthermore, the business of this
syndicat or association must be confined to one or more of
the following objects: the purchase of seed, plants, insecti-
cides, fertilizer and things for improving the soil; cattle,
feed, implements and machinery and means of transporta-
tion; the payment of wages, rent, and working expenses; or
the execution of work to improve the value of the soil or
property. Such an association may itself be a member of
the bank.

The members of an agricultural mutual credit bank,
therefore, may be individual organized farmers and asso-
ciations of farmers. The chief object of the bank is to accord
credit to its members, but only for the production, manu-
facture, marketing and sale of farm produce; or for the pur-
chase, upkeep, or installation of warehouses and workshops
for agricultural machinery and material and vehicles for
hauling; or for the acquisition of agricultural machines.

For the purpose of raising funds for carrying on its op-
erations an agricultural mutual credit bank may receive, be-
sides the subsidies from the state, moneys by donation or
legacies or on deposit from members or any other persons.
The interest rate on deposits must never exceed four per
cent, and the rate on money borrowed by the bank must not
exceed that actually given on the deposits.

The sphere of operations of each local bank is one com-
mune. Local banks may unite to form district banks, with
the consent of the Minister of Agriculture obtained through
the Agricultural Credit Board. The articles of agreement

SPAIN AND PORTUGAL 423

of a local bank, drafted on a model prepared by this Board
and duly sworn to and filed as a public document, must be
signed by at least ten farmers, and specify the conditions for
the admission and expulsion of members, define their rights,
obligations and liabilities, prescribe the method of organizing
the committee of management and the meetings of members,
and define their respective duties and powers.

The liability of members may be limited to a share or to
an amount of which the share is a multiple, or it may be
unlimited and render members jointly and severally liable
for all debts of the bank. But creditors cannot touch the
members until legal remedies against the bank have been
exhausted. A limited-liability bank may issue shares and
pay dividends up to 4% per cent a year. Indeed, one-half
of the profits must be annually applied to paying back the
shares of members. But ia an unlimited-liability bank,
neither the profits nor any of the funds coming from sub-
scriptions, entrance fees, gifts, subsidies or from any other
source may be distributed among members. All the profits
are put into the reserve, and in the event of dissolution
this fimd must be turned over to the Agricultural Credit
Board to be used in founding a new bank in the same com-
mune, or in some undertaking therein of an agricultural na-
ture if a new bank is not formed within one year. The
only officers who may receive pay are the treasurer and the
accountant.

The loans of a bank must not be for longer than one
year, with a renewal for one year more. The maximum
interest is five per cent, except for loans made from funds of
the celleiroSj on which it is three per cent. Pledges, deposits,
assignments of income, signature of sureties or mortgages
are always required for security. In loans secured by in-
dorsement, the surety is considered to be primarily liable.
Loans on real estate must be secured by first mortgages.
None can be over $1,000, and the total must not exceed one-
fifth of the outstanding loans of the bank. No member may
borrow a sum of more than 50 per cent of the value of the
security offered plus 25 per cent of the value of unencumbered

424 EUEAL CEEDITS

real estate owned by him or his sureties. The purpose of the
loan must be stated in the application, and if the borrower
uses it in any other way, he must be expelled and can never
become a member of another agricultural mutual credit bank,
besides being liable to criminal prosecution and a fine of $5
to $500. Preference must be given to loans for small
amounts. An appeal lies from the bank to the Agricul-
tural Credit Board in cases of expulsion or refusal of ad-
mittance or of an application for a loan.

The agricultural mutual credit banks may use their re-
serves as well as their other funds in making loans, and when
their funds are larger than are necessary for the needs of
their members, they may lend the excess to other banks of
the system or employ it in local agricultural undertakings
or even in propaganda for diffusing knowledge of coopera-
tive credit. The banks, the business done by them, and
their paper and documents are exempt from all taxes and
duties and their correspondence may be franked through
the mails.

But the moneys advanced to a bank through the Agri-
cultural Credit Board may be used only for loans to mem-
bers. The advances granted by the Board to a bank or-
ganized on the limited-liability plan must not exceed twice
its capital. The advances to an unlimited-liability bank are
restricted to the amount of the capital plus 50 per cent of the
combined value of the unencumbered real estate owned by
members. This value is computed by taking 15 times the
taxable revenues as assessed for taxes. These advances run
for one year and must bear at least 3% per cent per annum.
They may be renewed, but with an increase in the interest
rate which may be one per cent more.

The interest is collected by the Bank of Portugal, which
must render a weekly account thereof to the Agricultural
Credit Board. After taking out the one-fourth of one t)er
cent allowed it for expenses, the Bank of Portugal must
set aside the balance of the profits coming from these advances
for creating a fund of $200,000 to be used for agricultural
operations. This fund is intended also to cover losses sus-

SPAIN AND PORTUGAL 425

tained by the Board in transactions with the agricultural
mutual credit banks, and may be used by the Government in
any way it deems fit for encouragiag agriculture and co-
operation.

The communal agricultural mutual credit banks may open
branches and agencies. They may also unite to form district
banks and these in turn may federate to form a central
bank. The Agricultural Credit Board ceases to do business
directly with a local bank when a district bank has been or-
ganized for it. The district banks are organized exactly
like the communal or local banks. In case of dissolution of
an unlimited-liability district bank, its assets, if any, are
turned over to the Agricultural Credit Board to be distrib-
uted among adhering local banks. The same distribution is
made of the assets of a limited-liability district bank after
paying off the share capital.

The central bank cannot be organized until each dis-
trict has a district bank. It will be named the Central
Bank of Agricultural Credit, with headquarters at Lisbon.
Its plan of organization and administration will be deter-
mined by the Agricultural Credit Board, and when it be-
gins operations the Board will turn over to it the agricultural
fund which is accumulating from the profits derived from
the advances to the commimal and district banks. It will
then dissolve and leave the management of the system in
charge of the Central Bank, which will replace also the
Bank of Portugal.

Very slow progress has been made in developing this na-
tional agricultural credit system under the 1911 law. Po-
litical disturbances and the iudifference and distrust of the
farmers have caused much interference and delay. Obstacles
have arisen also because of the restrictions imposed by the
law on loans made by the Agricultural Credit Board to un-
limited-liability banks. Very few individual farmers have
unencumbered real estate. Many of them farm land held
on long leases. These cannot be counted in estimating the
credit standing of a bank, and as a consequence in most
localities such banks, which are the preferred kind, could

426 EUEAL CEEDITS

not obtain sufficient funds for their operations. Amend-
ments have been presented to remove these objections to the
law.

In 1913 there were only 29 agricultural mutual credit
banks with 1,015 members, a very insignificant niunber in
view of the fact that 65 per cent of the 5,016,267 of the pop-
ulation of Portugal is agricultural. jB.owever, the $1,500,000
placed by the Government at the disposal of the banks through
the Agricultural Credit Board has lowered the interest rate
to their members from 20 per cent to five per cent.

The Eepublic of Andorra is under the protection of
France and the Archbishop of Urgel. Its farmers, not being
citizens of France, are not eligible to membership ia the
banks of the Credit Agricole Mutuel, but the nearby banks
of the French Federation of the Farmers' and Workmen's
Banks with Unlimited Liability are available for them. The
Eepublic of San Marino is enclaved in Italy, and its farm-
ers have access to the Italian Catholic and non-sectarian rural
credit societies. There is no rural cooperative credit society
in the independent principality of Monaco, nor have any
official statistics been published relating to cooperative credit
in the independent principality of Liechtenstein.

CHAPTBE XXX

BEITISH INDIA, JAPAN, EGYPT, AND THE APEICAN
COLONIES

Conditions in India. — The Kuttuehuttu and Nidhis. — ^Work of Nichol-
son and WolfE. — Cooperative Credit Laws of 1904 and 1912. —
Development of Societies. — Statistics. — Early Mutual Aid So-
cieties in Japan. — ^Law of 1909. — Central Association of Co-
operative Societies. — Attempts in Egypt. — Society of Omar
Lufty Bey. — Credit System in Algeria and Tunis. — Provident
Societies. — Thrift Societies of French West Africa. — Credit So-
cieties in Java, Windhoek.

Within an area one-third as great, British India has a
population nearly three times as large as that of the United
States. The land yields a tropical abundance, but is afflicted
by frequent droughts and plagues which cause the death rate
to exceed the birth rate by nearly one-half of one per cent.
The 250,000,000 of inhabitants, comprising numerous races
of varying degrees of civilization and speaking many lan-
guages, are huddled together with more than 166 souls to the
square mile and are so ignorant that only five per cent of
them can read and write. The vast majority suffer from
periodical famines and live in such pitiable indigence that
their sole ambition is simply to keep from dying of hunger.
And yet this immense empire of illiterate and poverty-
stricken people is supposed to have more gold, gems and
jewels than any other nation.

From the days when men first began to quarry and mine,
the Hindustani have been collectors of precious metals and
stones, for ornamental display by their rulers or superiors and
for concealment in the ground or secret vaults for reasons
whereof no satisfactory explanation has ever been given. The
amount of gold bullion and coin thus buried and hoarded is

427

428 EUEAL CEEDITS

incaleulable. British India now imports an annual average
of $60,000,000 of gold from Europe, South Africa and
America. Lord Curzon estimates that $2,750,000,000 has
been brought in since England assumed imperial dominion,
to say nothing of what has come in by way of China and
the Orient, and has vanished from circulation, to the sacrifice
of at least $110,000,000 of interest a year.

This absorption and disappearance of wealth are known
to have been going on to swell the volume of hoarded treas-
ures of previous centuries. The efforts being made to stop the
practice of hoarding meet serious opposition because of
the fact that perhaps most of the owners and hoarders are
Mussulmans, who, obeying the injunctions of the Koran, re-
fuse to take interest and cannot be induced to put their money
to material use. Thus it happens that in India, rich enough
to finance all its people, there exist side by side magnificent
opulence and abject penury, between which multitudes
who are struggling to make a decent living are unable to
obtain the necessary capital except at exorbitant interest
rates.

An indigenous form of cooperative society for thrift and
mutual credit has existed in British India for many ages.
This is the Kuttuchuttu, in which a number of persons, usu-
ally of the same village, subscribe a fixed weekly or monthly
sum. The accumulated amount is lent successively to each
member, the individual selected being determined by lot at
regular intervals, all former winners being excluded from
the drawings but being required to continue payments on
their subscriptions. Nidhis, or loan-fund societies, also
sprang up about the middle of the last century. These are
exactly like the American savings and loan associations, with
the exception that the funds are not necessarily used for
building purposes. Mutual or collective liability likewise
was sometimes required by the Government as early as 1883
for advances made by the state in hard times for the pur-
chase of seed and cattle for the needy. By a law enacted in
that year all the inhabitants of a village receiving such an
advance could be made personally responsible for its return.

BRITISH INDIA, JAPAN, EGYPT, ETC. 439

But the pure European form of eooperative credit did
not appear until 31 years later, althougli some pioneering
■was done in the meantime. In 1883 Sir Henry Storks first
brought eooperative credit to the official notice of the Indian
Government. In the early nineties unsuccessful attempts
to introduce it were made by the Salvation Army and by
Lord Macdonnell in the United Provinces and at Mysore.
In 1893 Lord Wenlock commissioned Mr. (now Sir) Freder-
ick A. Nicholson on special duty to inquire into the possi-
bility of introducing into the Madras Presidency "a system
of agricultural or other land banks." In 1895 Sir Frederick
submitted the first volume, and in 1897 the second volume,
of a monumental report. This report (unfortunately now
out of print) contains an account of all such banks then ex-
isting in Europe and the United States and is the best and
most complete treatise, particularly of land credit, which has
been published in the English language. It is the unrivaled
classic in our tongue on the subjects discussed and gives more
information as to both facts and principles than any similar
publication.

It wiU be noticed that Sir Frederick's instructions were
mainly to study land banks. He carried them out to the let-
ter but made a thorough investigation also of cooperative
credit and summed up his report in two words, "find Eaif-
feisen." This conclusion was reached after consultation
with Henry W. Wolff, "whose extensive knowledge of the
principles and practice of cooperative village banking," says
the report, "are well known, and whose valuable suggestions
conununicated through the Secretary of State have received
our most careful consideration." The report revolutionized
thought in official British India, and as a result a law for
cooperative credit was placed on the statute books with the
assistance of Mr. Wolff, now the most prominent authority
on popular credit in English-speaking countries. The spread
of cooperative credit in British India since the passage of
this law makes one of the most remarkable chapters in the
history of cooperation. The number of banks, it is true, is;
yet insignificant in comparison with the financial needs of

430 EUEAL CREDITS

the multitudinous population, but wherever they exist they
have stamped out usury, stimulated thrift, and furnished
easy money in sufficient quantities to many poor farmers who
never before could get a rupee. The success achieved has
prompted the governors of all the provinces to declare that
the social and economic regeneration of the Hindustani
farmers wiU come through cooperation. Such is the out-
come in that enormous country of the study of Sir Frederick
A. Nicholson and of his adviser, Henry W. Wolff.

The British India cooperative credit law, which was en-
acted in 1904 and amended in 1912, outliaes in a general
way the principles of cooperative credit, allows limited and
unlimited liability of members of the societies which it au-
thorizes, permits such societies to form central banks, unions
and federations, and empowers the provincial governments
to prescribe the rules and regulations for their organization
and management. A special act was passed for the protec-
torate of Baroda. Naturally there are some slight points of
difference among the systems in the various provinces, but
the societies all belong to either one of the two classes al-
lowed, formerly urban and rural, but now, by the amend-
ment to the law, linodted and unlimited.

When the liability is limited by shares, no person may
hold shares of a face value in excess of 1,000 rupees ($324),
nor more than a certain portion of the total capital as deter-
mined by the provincial government, subject to the general
regulation that this portion shall not be more than one-fifth.
The by-laws may fix the mmiber of votes which any one
member may have. Dividends may be distributed after one-
fourth of the profits have been set aside for the reserve.
When the liability is unlimited a member has only one vote.
All profits must be placed in the reserve until that fund
reaches a certain percentage of the outstanding obligations
of the society as fixed by the by-laws or the provincial act
and imtil the interest on loans has been reduced below a
rate specified in the by-laws. After that a rebate may be
distributed among the members in proportion to their loans
as determined by the by-laws.

BEITISH INDIA, JAPAN, EGYPT, ETC. 431

Neither class of society may take deposits from non-mem-
bers nor make loans to them. There is one exception to this
rule, in that a limited society may lend to an imlimited
society and an imlimited society may lend to another im-
limited society. The privileges accorded to both classes of
societies are the same. A cooperative credit society has a
lien on the crops or agricultural produce of a member who is
in debt to it for money advanced or credit extended to enable
him to obtain seed or fertilizer, and also upon any livestock,
implements, machinery or raw material sold by the society
to a member or bought by such member with money lent by
the society. This lien may be enforced against the rights
of prior creditors. Every society may do collective buying
and selling for members ia addition to its banking busiuess,
if so provided in its by-laws. A large number of societies
exercise this right.

All cooperative credit societies are exempt from the in-
come tax, stamp duties and registration fees. Appropria-
tions have been made so that each society may receive an
advance from the state equal to the amount of the deposits
of members. The societies of each province are subject to
supervision and inspection by a registrar appointed by the
provincial government. The duties of this ofBcial are far
more important than the title indicates, because besides reg-
istering, inspecting, auditing and advising existing societies,
he is required to organize new societies wherever possible and
to propagate the cooperative credit idea generally in his
province. In fact, the development and direction of the
cooperative movement in British India rest in the hands of
the registrars, and they are given wide discretion in the per-
formance of their functions. They frequently allow the cen-
tral banks to inspect and audit the locals in the first instance
but do not yet depend entirely upon their findings. These
central banks, which may admit individuals as well as so-
cieties as members, are divided into three classes : those which
lend exclusively to other societies; those which lend princi-
pally to other societies; and those which lend principally to
individual members.

432 EUEAL CEEDITS

In 1911 there were in British India 4,957 rural coopera-
tive credit societies registered under the laws. Their aver-
age membership was 28, or a total of 238,978. In addition
there were 415 urban societies and 60 central banks. The
combined working capital of the rural societies amounted to
11,018,863 rupees ($3,570,111.61), and loans to 10,389,674
rupees ($3,366,254.38). One-half (50.2 per cent) of the
working capital consisted of loans from other societies; 13.7
per cent of loans from non-members, usually philanthropic
persons, savings or commercial banks; 5.5 per cent of loans
from the Government; 13.3 per cent of share capital; 14.2
per cent of deposits from members; and 3.1 per cent of re-
serves. The loans usually ran for one agricultural season.
The interest rates varied, the lowest being 6% per cent in
Madras and the highest 18% per cent in Bengal. But these
rates were far below the average outside the cooperative so-
cieties, where 24 to 150 per cent is charged. The size of in-
dividual loans was $5.15 to $32.40. With few exceptions
the rural credit societies have imlimited liability, due per-
haps to the fact that the members use their savings in mak-
ing deposits instead of in buying shares in order that their
societies may receive larger advances of working capital from
the state.

The central banks in 1911 had a combined working capi-
tal of 6,040,275 rupees ($1,957,049.10). Over one-half of
this (51 per cent) consisted of loans from non-members; 3.68
per cent of loans from other societies; 1.05 per cent of loans
from the Government ; 12.81 per cent of share capital ; 30.07
per cent of deposits of members; and the rest of reserves.
The outstanding loans amoimted to 5,703,040 rupees
($1,847,784.96). The loans ran for over a year but never
longer than two years. The interest rates were somewhat
less than those of the local banks. 'So unions or federations
have been formed yet in British India, but a few of the cen-
tral banks serve as such.

Over 60 per cent of the population of Japan is agricul-
tural but only a small portion of the land is cultivated.

BRITISH INDIA, JAPAN, EGYPT, ETC. 433

The mountainous interior is left to forests and natural
growths and the farming is done along the coasts or in the
valleys. Cultivation is intensive to the last degree. Over
87 per cent of the farmers make a living for families of four
to six persons on garden patches of less than five acres.
Three or four crops are raised a year in the tropical and
at least two in the temperate regions, so the country depends
on importation only to a slight degree for the necessary
staples of food and clothing.

Association for mutual assistance is an old practice
among Japanese farmers, just as it is in Europe. At the
abolition ofC the feudal system a secret aid society was
founded by Shin-en Sato, while about the time that Schulze-
Delitzseh started his first bank in Germany, the famous peas-
ant sage, Sontoku Ninimiya, formed the Hotoku-sha, the
original Japanese cooperative credit society. Many institu-
tions of this type stiU exist, organized either as joint-stock
companies, associations, or cooperative societies with limited
or unlimited liability. Some of them are managed by public
authorities, others by private individuals, but all are operated
without lucrative object. Their principal business is to
maintain warehouses for receiving and grading rice and issu-
ing warrants against it. By this means growers are able
safely to store their crop until a good market arises and to
derive all the advantages of collective selling. These ware-
house concerns also grant loans on the security of the stored
rice, and in addition to their regular business, strive to in-
duce farmers to use commercial fertilizer and modern im-
plements and machinery and to exercise care in harvesting,
cleaning and sacking their produce. Many hold expositions
and demonstration shows and have become strong factors
in their localities for the improvement of agriculture gen-
erally.

Cooperation of the European kind, however, did not make
its appearance in Japan until after the law on cooperative
societies was enacted by the Imperial Diet on April 8, 1909.
Since then it has made enormous strides. This law, with its
amendments, ranks with the best which have been drafted

434 ETJEAL CEEDITS

and is in all respects in keeping with the progressive spirit
displayed by Japan ever since she opened her ports to the
light of western civilization. Cooperative societies are di-
vided under this law into four classes-^credit, purchase, pro-
duction and sales. Any of the last three may have credit
as one of their objects, and, in fact, all objects may be com-
bined in the same society. The societies may choose either
unlimited liability, or liability limited to the members' sub-
scriptions, or liability limited to a fixed number of times of
the subscription.

A cooperative society must have at least seven members
and may limit the mrniber above that minimum. It must
confine its operations within an area, usually a commune,
fixed by the articles of agreement. The articles of agree-
ment must be approved by the prefect. The rights and
duties of members of the society and the rules for admission
and expulsion are laid down in the civil and commercial
codes.

Cooperative societies may unite to form federations,
which may act as supervisors, as regional banks and regional
establishments for collective buying and selling for adher-
ents, and as centers for protecting and promoting their com-
mon interests and for propagating and developing coopera-
tion. Societies for production, purchase and sales may join
credit federations, but pure credit societies may not belong
to federations which have any other object than credit. The
federations may assume limited liability or a liability limited
to a certain number of times the subscriptions of adherents.
Each federation's sphere is limited to a province, except
where it is authorized by competent authority to operate
over two or more small provinces. The managers and in-
spectors of a federation are elected at the annual meeting
from among the officials of adhering societies, unless it be
deemed advisable to choose outsiders, in which event the
selection must be confirmed by the prefect.

Over all is the Central Association of Cooperative So-
cieties, which serves as the national organ of both the local
societies and the federations. This body was formed by vir-

BRITISH INDIA, JAPAN, EGYPT, ETC. 435

tue of a law which defines its purposes and powers and de-
clares it to be constituted with the view of encouraging the
formation of new societies and federations, of improving
those already formed, and of facilitating financial and com-
mercial relations among the various units of the system. Co-
operative societies are exempt from the payment of the income
tax and the tax on business but not from registration fees.

In 1912 there were 9,349 cooperative credit societies in
Japan with over 980,000 members, and 30 federations, not
counting the central federation. Two of the federations had
a liability extended to a certain number of times the sub-
scriptions of adherents, while the rest have strictly limited
liability. Of the locals, 47.90 per cent had a liabilily limited
to members' subscriptions, 50.08 per cent unlimited liability,
and 3.03 per cent a liability limited to a certain number of
times members' subscriptions. The average membership
during the past four years was 105 per society, of whom
81.93 per cent were farmers. Of the total number, 3,676
societies had credit and savings as their only object, but 4,635
economic societies also had these objects, thus making 7,301
societies which did a banking business.

On account of this frequent combining of various objects
in the same society, it is difficult to give exact statistics of
the business done by the credit societies alone. In 1913 the
working capital for aU societies was $31,314,535, including
sums paid on shares, deposits, reserves, special funds and
borrowed money. This figure represents an infinite number
of little items and transactions, because the average sum paid
in on shares was $7.93, while deposits of five cents were by
no means rare. By last reports the highest interest rate for
loans was 18.3 per cent, and for deposits 13.3 per cent per
annum; the lowest rates were 13 per cent and six per centj
respectively. These excessive rates for loans, however, are
much less than are exacted from unorganized farmers in
Japan.

In 1908 Prince Hussein, now Premier of Egypt, ap-
pointed a commission in behalf of the Khedivial Society of

436 ETJEAL CEEDITS

'Agriculture to study agricultural cooperation and to prepare
a bill on the subject for Egypt. A bill -was drafted with the
assistance of Mr. Eibet of the French Department of Agricul-
ture, but it was not accepted by the Egyptian Government.
Prince Hussein has not yet accomplished his main object,
but he has succeeded in awakening a public interest which
now seems likely to develop into a general movement for the
introduction of cooperation in Egypt.

Among the members of Prince Hussein's commission was
Omar Lufty Bey, who, if the movement continues to sub-
stantial results, will be known as the father of Egyptian
cooperation, because he founded at Cairo in 1910 the first
cooperative society on the land watered by the NUe. This
society's object is credit for small traders, and while many
farmers are found among its 350 members, it is far from
being agricultural. Its organization and business methods,
however, have been taken as models for all rural credit so-
cieties so far formed in Egypt.

Owing to the absence of the necessary law, Omar Lufty
Bey could not establish his society on the collective liability,
limited or unlimited, of its members. He had to form it as
a joint-stock corporation. But in order to give it some coop-
erative features he inserted two articles in the charter which
provide that shares may not be transferred except with the
consent of the managing board of the society, and that credit
may be accorded only to members, unless the funds are in
excess of their requirements, when loans may be made to
outsiders. This society had in 1913 a paid-up capital of
$35,000, and upon this made $105,000 of loans. These fig-
ures are too small to have any material efEect upon the multi-
tudes of moneyless and debt-encumbered fellaheen, but the
fact that the society can lend at 7% per cent interest and
make handsome profits in places and among a class of people
where the Greek usurers will not let their money go for
less than 30 to 35 per cent per annum, furnishes a striking
example of the potency of cooperation even when it is held
together simply by the spirit unsupported by legalized form.

Only a few days after Omar Lufty Bey founded his so-

BRITISH INDIA, JAPAN, EGYPT, ETC. 437

ciety, an exclusively rural cooperative credit society was
started at Shubrah-el-Namlah. This also was successful, and
by granting its 97 members one-year loans at six per cent
proves conclusively that usury can be abolished by coopera-
tion even among the smallest farmers along the Nile. This
society does most of its business by buying seed, fertilizer, and
coal to seU to members at three per cent above the purchase
price for cash, or at seven per cent above on credit. In 1912
there were nine agricultural credit societies in Egypt or-
ganized like the first of those described ard operating like
the second.

In 1901 the French Government created an agricultural
mutual credit system in Algeria and supplied it with funds
by a method similar to that used in the mother country.
The Bank of Algeria was required to place $600,000 at the
disposal of the regional banks and engage itself to certain
annual payments in addition thereto. In 1910 there were
41 regional and 338 local banks with 10,663 members. Up
to that year the Bank of Algeria had turned over to the state
$1,050,000, most of which had been advanced to the regional
banks for nine years without interest. Their combined capi-
tal was $373,013, and reserves $104,399. The banks admit
natives and Europeans indiscriminately.

The system was extended in 1904 to Tunis, where there
are now one regional bank and 32 local banks with 671 mem-
bers. The regional bank of Tunis has a capital of $16,000
and the state has advanced it four times that amount with-
out interest out of the funds coming through the Bank of
Algeria. Interest rates on loans for members in both coun-
tries are generally 5.5 per cent.

Very few natives belong to the cooperative banks in
Tunis, for the reason that the Mohammedan religion forbids
the taking of interest. Special institutions have been estab-
lished for the natives, which are called provident societies.
They are managed by the native chief and government offi-
cials and are financed by an extra land tax levied on the
natives. Part of their funds are also composed of donations.

438 EUEAL CEEDITS

legacies and the state subsidies from the Bank of Algeria.
Some of these societies have departed from strict observance
of religious priaciples and borrow money when needed and
make loans to members. But their main and ordinary busi-
ness is to make loans in kind and relieve members in dis-
tress. About 150,000 natives belong to these societies and
are able to get advances for food and seed at 12 per cent on
short time and 11 per cent on long term, if secured by real-
estate mortgages. Formerly the natives paid 18 to 150 per
cent.

In 1910 the Governor of French West Africa promul-
gated a decree for the formation of thrift societies, mutual
aid societies and land credit societies for the natives. A
six months' residence in a district is a necessary qualification
for membership. The wording of the decree indicates that
membership is compulsory for all such persons. The interest
rate on loans in money is limited to five per cent per anrmTn
and on loans in kind to 25 per cent per annum.

In a few of the other colonies of European Powers coop-
erative credit has been organized. A rural credit society of
the Eaiffeisen type was formed in Java in 1904 by de Wolff
von Westerode, a public official of the Dutch provincial gov-
ernment. A credit society with liability limited to about 30
times the face value of the shares exists in Windhoek, the
capital of German Southwest Africa. It has 125 members
and belongs to the Imperial Federation of Germany. There
is one credit society in Guinea, one in the Barbadoes, and one
in Jamaica, all following more or less closely the Eaiffeisen
type.

CHAPTER XXXI

GEEAT BEITAIN, lEELAKD, CANADA, AND THE
UNITED STATES

Irish Agrieultural Organization. — Sir Horace Plunkett. — Doneraile
Credit Society. — ^Progress of Eural Cooperative Credit Not Sat-
isfactory.— Agricultural Organization Society for England and
Wales. — Organization and Management. — Scottish Agricultural
Organization Society. — Caisse Populaire of Quebec. — ^Legisla-
tion of 1906. — Cooperative Credit in French Canada. — Coopera-
tive Credit Among Jewish Farmers of the United States.— Gen-
eral Agitation of Eural Credit Idea. — Jewish Eural Cooperative
Banks. — Other Cooperative Attempts by Jews in North and
South America.

The agricultural cooperative movement in the United
Kingdom is guided by the Irish Agricultural Organization
Society, the Scottish Agricultural Organization Society, the
Agricultural Organization Society for England and Wales,
and the Joint Board for Agricultural Organization, which
links them all together. These four bodies have for their
exclusive object the aid and development of agriculture and
rural industries through cooperation. They are strictly non-
profit making, siace the law under which they are chartered
forbids such associations to engage in lucrative business.
The trading end of the movement is cared for in England
and Wales by the Farmers' Central Trading Board, which
in its turn is linked up with similar boards in Ireland and
Scotland by the Joint Agricultural Board of Trade for the
four countries.

The movement directed by this excellently arranged sys-
tem was started in Ireland in 1889. Although prosperous
now, through the introduction of cooperation, the land-pur-
chase acts and other legislative reforms, the misery of Ire-

439

440 EHRAL CEEDITS

land at that period is well known. "The country," said Har-
old Barbour, "had appealed to God, to the state, to humanity,
for sympathy, for aid, for dollars, and had become a mendi-
cant among the nations." Steps had already been taken, it
is true, to solve the land question, but the "fair rents," al-
though fixed by the courts at reasonable figures, were more
than the tenants could pay. Nearly one-half of the inhabi-
tants of Ireland had emigrated beyond seas, and most of
those who remained were living in mud huts or squalid hov-
els, inflamed with mutinous rage against the Government.
The plight of the farming classes was the most wretched of
all, for on account of their crude methods of cultivation and
marketing, foreign competitors were underselling them in
the staple products for which the soil was best adapted and
the meager gains were shared between the landlords and the
"gombeen" men.

In the midst of this distress, when the decaying state of
agriculture was demoralizing the Irish farmers economically
and socially, Mr. (now Sir) Horace Plunkett, who had been
ranching for a number of years in western United States,
returned to his native land and resolved to devote his life to
rescuing the Irish farmers from their miserable situation.
This was, in his opinion, due in a large measure to their own
improvidence and disinclination to farm and market their
crops in a scientific and modern way. Sir Horace was fa-
miliar with what had been done by Eaiffeisen in Germany,
and, inspired by his principles, with a few enthusiastic pio-
neers he mapped out a campaign to persuade the Irish farm-
ers to organize agriculture on cooperative lines and to induce
the state to give to them the same kind of assistance which
the German farmers received from the Government. By
1894 the campaign had progressed sufficiently to show that
cooperation was congenial to the Irish spirit, and the Irish
Agricultural Organization Society was formed at Dublin
under the presidency of Sir Horace Plunkett to direct and
further the movement.

This Society for propaganda and organization work so-
licits and has received aid from the state but it is not con-

GEEAT BEITAIN AND lEELAND, ETC. 441

neeted with the Govemment. It is composed of private in-
dividuals and afiBliated local cooperative societies and depends
in the main upon their fees arid voluntary contributions for
support. Since its foundation the Society has expended over
$500,000, and never has money been spent for better purpose
or to greater effect. Ai the beginning of 1913 there were
in Ireland 934 rural cooperative societies with 97,318 mem-
bers. Their annual turnover exceeded $13,000,000, and the
total turnover since the first society was formed has reached
nearly $100,000,000.

The first Irish cooperative association was a creamery, and
creamery associations still constitute the largest class among
Irish cooperative societies. The first credit society was not
started until February, 1895, when the movement was over
five years old. Plunkett, who had read Henry W. Wolff's
books on agricultural banks, attended a meeting on coopera-
tive credit in London, which was addressed by Mr. Wolff and
was deeply impressed by what he heard. "You have con-
verted me," said he to Wolff, "and I want you to come over
and convert my colleagues." Mr. Wolff went to Dublin, con-
vinced the Irish Agricultural Organization Society that
credit of the Eaiffeisen type should be developed along with
the general cooperative movement, and the Doneraile bank
was the result.

The area of the Doneraile credit society is so restricted
that the members are all acquainted with one another. They
are liable without limit for all obligations the bank incurs.
The loans are made only for productive or provident pur-
poses, and must be used for the specific object for which
they are granted. They are for short terms adjusted to the
needs of each ease, and draw five to 6^ per cent interest, but
are never granted except on the security of two iudorsers.
The society distributes no dividends, bonuses or rebates.
Profits are written to the reserve with the hope of making
that fund sufficient in time for all operations and for reduc-
ing the rate of interest to borrowers. Money for loans comes
from the commercial banks, depositors and the state. No
person may be a member unless he is sober, industrious, of

442 EUEAL CEEDITS

a friendly nature and known to be strictly honest, and it is
the duty of the management, composed of a chairman and a
committee, to see that only such persons are admitted. No
one in the management except the secretary receives compen-
sation.

There are at present in Ireland 236 rural cooperative
credit societies with 19,505 members, aU organized and man-
aged like the one at Doneraile. The oflScers in many in-
stances are priests or school teachers who joined the societies
especially to serve in that capacity. The commercial banks
make advances to the credit societies at a imiform rate of
four per cent irrespective of the fluctuation of the rate of the
Bank of England. The societies pay between three and four
per cent on deposits, and all have received sums of $250,
$750 or $1,000 for initial expenses from the state or coimty
councils in the way of loans at 3 per cent. About one-fourth
of their working capital is now obtained from these public
sources, and in the early stages over one-half was so ob-
tained.

In spite of this outside assistance rural cooperative credit
has not made satisfactory progress in Ireland. Of the total
number 176 rural credit societies are active, the rest being
merely skeleton organizations or in a stagnant condition.
Only 80 per cent of them render annual reports to the Irish
Agricultural Organization Society, which is supposed to
audit their accounts and supervise their affairs. Eenewal of
loans is a flagrant practice, and the state has been compelled
on 28 occasions to resort to the courts for the recovery of its
advances. These advances and the deposits lie idle in many
societies, causing a loss of interest which eats up all profits
in 31 of them. The Irish Agricultural Organization Society
attributes the trouble to the fact that most of the credit so-
cieties operate on too small a margin and that the managers
prefer to do business at all to doing it without any profit.
Fires and unexpectedly heavy expenses have occasioned losses
in some cases. The Society does not seem to think that state
aid may have weakened the spirit of self-help and independ-
ence. Critics of the Irish system, however, are inclined to

GEEAT BEITAIN AND lEELAND, ETC. 443

lay stress upon this point. They also believe that the Irish
credit societies should be given trading powers. No rural
credit system has succeeded greatly except where the credit
societies do collective buying and selling or else are sjmdi-
cated by identity of membership with purchasing and distrib-
uting societies. Farmers will not organize credit societies or
assume the expense, care, risk and responsibility of their
management unless such banks are empowered to utilize the
funds "Obtained by shares or deposits for some definite objects
of economy and convenience. Thrift stimulated by divi-
dends or interest, so effective in the cities, is no induce-
ment to farmers, who, as a rule, find immediate use for
all money they make and so have none to lay aside in the
banks for loans to others at the rates they are able to
offer.

The Agricultural Organization Society (London) for
England and Wales was formed in 1900 by the coalition of
the National Agricultural Union formed by Lord Winchil-
sea in 1892 and the British Agricultural Organization So-
ciety formed in 1899 by W. L. Charleton, a pupil of Sir
Horace Plunkett. In the beginning this body was a coun-
terpart of the Irish Society and was composed of private
individuals. In May, 1913, however, it was entirely recon-
structed, and became a semi-public institution managed by
a board of 36 governors, of whom 13 are appointed by the
Board of Agriculture and Fisheries, two by the County Coun-
cils Association, two by the Cooperative Union, two eoopted
by the governors, and 18, including the president, elected
by aflBliated societies. The county councils also are strongly
represented on the committees which manage the branches
of the society in the various districts. The Cooperative
Union existed before cooperation spread to agriculture in
England and is composed mostly of urban societies.

The conversion of the Agricultural Organization Society
from a private to a semi-public institution was prompted by
its desire to receive subsidies from the state. The act relat-
ing to the Development Commission provides that the Treas-

4M EUKAL GEEDITS

ury may make grants or loans to any association of persons
which the Commission may recommend. The Commission
demanded that the changes mentioned should be made before
it would recommend it to the Treasury, so the Society acted
accordingly. The subsidies were desired chiefly for promot-
ing small holdings and allotment cooperative associations.
Sixteen of these associations have been formed. Thus the
activities of the Agricultural Organization Society for Eng-
land and Wales extend to real-estate credit, and this together
with its semi-public character are the chief points of differ-
ence between it and its Irish prototype. Nevertheless, it
depends mainly on voluntary contributions and the fees
of aflBliated societies for financial support. It publishes
an oflBcial organ Cooperation in Agriculture^ a periodical
similar to the Irish Homestead^ published by the Irish So-
ciety.

In 1913 there were 476 cooperative societies belonging to
the Agricultural Organization Society, with 45,000 mem-
bers, and all imposed unlimited liability. The aggregate
money value of their transactions for the preceding year was
nearly $10,000,000. Of these societies 46 with 800 members
were for credit. Their total turnover was less than $10,000.
Only 21 of them made loans, and the aggregate was under
$7,500. So rural cooperative credit in England and Wales,
as in Ireland, is making poor progress. The reasons as-
signed for its slow growth are the reluctance of the farmers
to borrow in cash, to show their financial needs to their
neighbors, and to assume unlimited liability. Moreover,
there does not seem to be any pressing necessily for coopera-
tive credit societies, since the ordinary banks and merchants
are willing to extend credit where required on easy terms
at fair interest rates.

A central bank was organized for the cooperative societies
of England and Wales in 1908. This is a joint-stock com-
pany with liability limited by shares, of which no individual
may hold more than $1,000. Affiliated societies may hold
above that amount. Dividends of more than five per cent per
annum may not be declared. The establishment of this bank.

GEEAT BRITAIN AND IRELAND, ETC. 445

however, was premature, and it has not been of much use.
In 1913, after the Central Cooperative Bank proved useless,
the President of the Board of Agriculture and Fisheries in-
duced 20 leading joint-stock banks with branches in rural
districts to sign a letter offering to assist in the formation
of rural cooperative credit societies and to grant them loans
and take part in the annual audit of their accounts, allowing
them to have the free services of the banks' treasurers, on
the understanding, however, that this would not involve
membership in the societies. The loans which the banks are
willing to grant are subject to recall on demand and may
not extend for over one year.

The Scottish Agricultural Organization Society (Edin-
burgh) was formed in 1905. It is composed of voluntary
contributors and affiliated societies, and is a private associa-
tion Kke the Irish Society. In 1913 there were 106 coopera-
tive associations belonging to the Scottish Society, but none
of them was for credit. The abundance of facilities af-
forded by the branches and agencies of the ordinary banks
is the reason given for the absence of cooperative credit so-
cieties in Scotland.

The first cooperative bank on the American continent
was started at Levis in the province of Quebec on December
6, 1900. As there was then no law on cooperation in the
Province, this bank, called the Caisse Populaire, was formed
simply as an association. The first sum which it received
was ten cents, paid by one of its members in an instalment
on his share. At the end of the first month it had taken in
only $242.80, but in 1912 the amount paid in on shares was
$114,343, and on deposits $53,564, while its reserve was
$11,741.53. On June 30, 1914, the total assets were $304,-
985.92. The turnover for the preceding 12 months was
$2,107,394.77, while the 7,208 loans granted to that date
aggregated $1,396,916.66. About one-half of these loans
were for sums varying between $10 and $100. To give exact
figures, out of 3,549 loans, 601 loans were for $10 or less.

446 ETJEAi CEEDITS

898 for $25 or less, 961 for $50 or less, 493 for $75 or less,
and 96 for $100 or less. It is claimed that the other half of
the loans were for similar sir-all sums.

Thus the Caisse Populaire is distinctly a bank for small
credit, as its name indicates, for the people. It has never
lost a cent. It now has 1,240 members among the town and
country folk in its vicinity, and its influence has spread far
and wide from Levis. Its success and fame has inspired the
formation of 120 banks of the same kind in Quebec, 19 in
Ontario, and 30 in the United States, and has brought about
the enactment of a law for cooperative associations in Que-
bec and also a law on credit unions in Massachusetts, which
was taken as the basis of the legislation on cooperative credit
in New York, Wisconsin and Texas.

The founder of the Levis bank was Alphonse Desjardins,
who still is its president and the promoter of many of the
other banks. Mr. Desjardins began the work which has led
to these remarkable results after 15 long years of study, dur-
ing which he made an exhaustive investigation of the cooper-
ative credit systems in Europe and consulted the most re-
nowned of the European leaders in. cooperation. The plan
which he finally adopted was based on the principles of Luz-
zatti of Italy, and imposes no liability whatever on members
for the obligations of the bank. The form of the adminis-
tration and management, however, says Mr. Desjardins, "ia
the main is exactly the same as that which is found in the
uncapitalized savings banks in the United States, with the
exception that the deposits are used by the very persons who
make them."

Owing to the absence of proper laws on cooperation in
Canada, Mr. Desjardins remained ia doubt for some time as
to whether to make a practical application of the ideas he
had evolved, but Mr. Henry W. Wolff, the authority on coop-
eration in England, advised him to go ahead without the
laws. This advice was followed, and Mr. Desjardins became
the American pioneer of cooperative credit. Mr. Wolff has
recently declared that the origination of the Canadian type
of bank entitles Mr. Desjardins to as much praise as has

GEEAT BKITAIN AND lEFLAND, ETC. 447

been bestowed on the founders of the systems of France and
Italy. The cooperative form of organization and administra-
tion appeared in the United States through the building
and loan associations, however, many years before Mr. Des-
jardins used it for personal credit in Canada.

The operations and members of the Caisse Populaire are
confined to a single parish, and women and children as well
as men may join, no matter how small their contributions
may be. Mr. Des jar dins has succeeded in making his bank
a social institution for encouraging habits of thrift and
assisting the worthy poor who are in need of credit. The
services of the bank, both as regards the granting of loans
and the receiving of deposits, are restricted to members, and
in this respect it differs from most of the European banks
which accept deposits from anybody. The interest rate on
deposits is generally three per cent. The Caisse Populaire
has no religious character, but practically all its officers and
members are devout Catholics.

The shares are five dollars each, and may be paid up in.
monthly or weekly instalments. A member has but one vote
regardless of the number of shares he may hold. Withdraw-
als may be made practically at will, and there is very little
difference between the paying in of money on shares and
on deposits. A month's notice is all that is required of a
member who wishes to have his money returned on his
shares. Dividends are distributed, the rate ordinarily being
four or five per cent. Since the shares are withdrawable, the
capital of the bank is not fixed, as in a joint-stock company,
but is variable and fluctuates ia size as members come in and
go out. Mr. Desjardins adopted this feature because he
expected that his bank would be supported and used by
small folk, and he realized that this class is unable to im-
mobilize its resources and would perhaps be deterred from
joining unless it had the privilege of regaining possession of
them if desired. As he says, the only distinction between a
share and a deposit is that the former is made up of savings
with a view of meeting future contingencies more or less re-
mote, while the latter is put aside for almost daily use.

448 EUEAL CKEDITS

Members have no liability except for the amouiit unpaid on
their shares. The bank has protected itself against possible
losses by creating a reserve into ■which at least ten per cent
of the profits are placed every year. In case of dissolution
this reserve would not be distributed among the members,
but would be used for some work of public utility designated
by the Lieutenant-Governor of the Province of Quebec.

The management of the bank comprises a board of direc-
tors, a committee on credit, and a board of supervision,
elected at the annual meeting of the members from among
themselves. Voting by proxy is not allowed. The term of
office is so arranged that a certain number retire annually.
The board of directors consists of nine members. It appoints
one of its members to be president and general manager, and
this person has been Mr. Desjardins since the foundation of
the bank. He is ex officio a member of the committee on
credit, and is the only officer allowed to be on two of these
bodies at the same time. Besides having generaL charge over
the affairs of the bank, the board of directors decides upon
the admission and expulsion of members and acts as a tri-
bunal to arbitrate disputes between members in cases pro-
vided by the by-laws.

The board of supervision, which consists of three mem-
bers, is the most important body in the bank next to the
shareholders regularly assembled. Its duties are indicated
by its name. It must examine the accounts of the bank and
the loan's and securities, and see that each officer conducts
himself properly. It may even suspend an officer, but in that
event must immediately call a meeting of the members
finally to decide upon the matter.

The committee on credit consists of four members. Its
sole duty is to pass on the applications for loans and to see
that repayments are promptly made or good reasons given
for the defaults. No loan or renewal may be granted unless
all members of the committee approve it. But the applica-
tions are not addressed directly to the committee. They
must be submitted to the president, who sends them up to
the committee. The president, being the manager, is the

GEEAT BRITAIN AND IRELAND, ETC. 449

most active ofiBcial of the bank, and he is the only one who
receives pay. All business done by the bank with the mem-
bers must be conducted through him, subject to the supervi-
sion and control of the boards. No loans may be made except
for productive or provident purposes. Repayments are made
by instalments if a loan runs for a year or longer, and the
borrower always has the right to pay in advance. Security
in the form . of indorsement by one or two other members
may be required. The interest rate on loans follows the
market, whereas at Levis in the days before the Caisse Popu-
laire existed the cruelist kind of usury was practised among
the classes from which the bank recruits its members.

There is no Canadian legislation for cooperative associa-
tions outside of Quebec. The law in that province, which
was enacted in 1906, incorporated in its clauses the arrange-
ment of the Levis bank as to organization and management,
and provides that an association for supply and production
as well as credit may be formed by 13 persons simply by
filing articles of agreement with the secretary-treasurer of
the municipal council having jurisdiction over the place
where the headquarters are located. The area for carrying
on operations and recruiting members is limited to a pro-
vincial electoral division, except that in cities embracing
more than one such division, the area may be that of the
entire cities. But in spite of this restriction an association
may conduct business outside of its territory when absolutely
necessary for accomplishing its object or carrying on its
affairs. All the benefits of the association must be confined
to members. Agricultural societies, agronomic groups and
municipalities are able to become members of an association
and hold shares therein. Honorary members and officers also
may be admitted but can take no part in the management
or enjoy any of its benefits. Shares cannot be less than one
dollar. Holders who are corporations, municipalities or other
associations may vote by proxy.

The shareholders must meet at least once a year, and may
proceed to do business no matter how many members have
responded to the call, since no size may be set for a quorum.

450 EUEAL CEEDITS

The board of directors must consist of at least five mem-
bers. The by-laws shall prescribe whether they are renewed
by one-half or one-third every year. They choose from
among themselves a president, vice-president, secretary and
manager, who act as such for the association during the
year. The board meets as often as occasion requires upon
call of the president or of two of its members. The board of
supervision must consist of at least three members, and the
by-laws may prescribe that one of them shall be renewed
each year. The board has the power to convene the mem-
bers in special session whenever it deems fit. The committee
of credit must be composed of at least three members, and
they may be renewed by one-half or one-third each year.
None of the members of these boards or the committee may
borrow directly or indirectly from the association or indorse
a loan. Every association should aim to create a reserve.
Ten per cent of the profits must be placed in the reserve until
it reaches at least the amount of the liabilities. When this
figure has been attained only five per cent need be devoted to
the reserve, but this latter percentage must be continued
until the reserve is double the liabilities.

All the cooperative banks in Quebec are regulated by this
law, and those in the other provinces have been organized and
conduct themselves according to its terms. These banks
numbered 139 in 1913, with a membership of 65,700, and
had assets of $1,945,000. The amount of the loans granted
was $3,560,800. The number of loans was between 14,000
and 15,000, showing that the average size is between $237
and $250. Over $8,700,000 of loans has been accorded since
the first bank was started 14 years ago, not one cent of which
has been lost. No bank has ever even made a loan of doubt-
ful value.

A movement for cooperative credit has now become gen-
eral throiigh Prench Canada, but it began only five years
ago. The delay was due to the fact that Mr. Desjardins, who
is the father of nearly all the banks, had only a few months
to give to the work each year. And above all he thought it
best to proceed with caution. "We wished," said he, "to

GEEAT BRITAIN AND lEELAND, ETC. 451

make the experiment complete and conclusive before attempt-
ing to spread this new idea. So during eight years and more,
with the exception of two cases, where, owing to proximity
we could watch the operations of these banks, we always
refused to listen to the requests which were made to form
banks elsewhere, replying that we should willingly go only
after experience had proved that our plan responded to a
real need and would flourish among the people." This hav-
ing been carefully proved by eight years of trial at Levis,
Mr. Desjardins then opened an active campaign of propa-
ganda, and under his guidance the number of the banks has
been rapidly increasing during the past three years. Eighty
of them now have a membership composed exclusively of
farmers.

The first, and so far the only, organized effort to estab-
lish cooperative credit among farmers in the United States
is that which is being made by the Jewish Agricultural and
Industrial Aid Society, a benevolent association chartered in
1900 under the laws of the State of New York to take over
the agricultural branch of the work of the Baron de Hirsch
Fund, another benevolent association chartered in 1891 in
the same state to administer the $3,400,000 donated by Baron
Maurice de Hirsch on the condition that its income should
be applied to assisting Jewish immigrants driven from their
homes by political or religious persecutions. These two as-
sociations take care of all cases of destitution which appear
to need their help, and they have been important factors in
diverting to American shores the refugees from the periodi-
cal pogroms of Eussia, who have been coming in such large
numbers since 1889 that today the United States has a
Jevidsh population second only to that of Eussia and seems
destined to have the greatest in the world. As one of their
leaders says, "this country presents to the Jewish emigrant
better opportunities in every field of human endeavor than
any other place to which fate has directed his steps."

The Jewish Agricultural and Industrial Aid Society ob-
tains the money for its operations and expenses from the

452 EUEAL CEEDITS

Baron de Hirsch Ftmd and the Jewish Colonization Associa-
tion, the BarMi's residuary legatee. In 1907 the Society elim-
inated from its consideration the industrial activities of immi-
grants so as to be free to develop entirely along agricultural
lineSj and it then so enlarged its scope in the latter respect
as to become the head of the propaganda and organization
■work for Jewish farmers, immigrant and native, throughout
the United States. This change of policy and programme
was brought about by Leonard G. Eobinson, who in that year
was appointed the general manager of the Society.

Mr. Eobiason, himself a Eussian immigrant, is a gradu-
ate of Harvard University and the New York Law School,
an education secured wholly by his own ambitions and un-
remitting exertions. la his control the Jewish Agricultural
and Industrial Aid Society gathered strength and broadened
its purposes. Moreover, Mr. Eobinson's plan of action was
matured when he assumed the duties of manager of the So-
ciety, since he had been identified with it in a miaor capacity
for the previous two years and had availed himself of this
opportunity to study its needs and possibilities. One of the
objects specified in the Society's charter was to encourage
the formation of cooperative creameries, factories and store-
houses, and this gave Mr. Eobinson his cue. In his reports
of 1907 and 1909 he called the attention of the hoard of
directors to the advisability of extending cooperation to
credit.

About this time rural cooperative credit was ]ust begia-
ning to be agitated iu the United States and the first indica-
tions of the present movement were making their appear-
ance. But while the movement was in its initiatory stages,
Mr. Eobinson actually formed rural cooperative banks for
the members of the Jewish Agricultural and Industrial Aid
Society. The first was started on May 1, 1911, at Fair-
field, Connecticut. Two others were started in the same
year, five more in 1912, and by the end of 1913 the num-
ber had increased to 18. Owing to the absence of coop-
erative legislation at the time, these banks were formed sim-
ply as voluntary associations. In organization they are simi-

GEEAT BEITAIN AND IRELAND, ETC. 453

lar to the Quebec banks of Alphonse Desjardins. The shares,
five dollars each, are in the nature of certificates of deposit,
payable in weekly or monthly instalments,, and may not be
issued until fully paid up. They impose no obligation for
compulsory savings, nor are they intended to involve the
holder in unlimited liability for the debts of the bank. The
share has no voting privilege. This attaches to membership
alone, and no member may have more than one vote no
matter how many shares he may hold. Initiation fees may
be exacted and dividends declared, but 25 per cent of the
net profits must be written to the reserve each year until
this fund equals the paid-in capital.

The supreme power in the banks rests with the members
regularly assembled, and they meet at least once a year to
elect officers and to make final decisions on all questions
which come before them. The administration consists of a
board of seven directors who hold office for one year, three
of their places becoming vacant and being refilled each year.
The president, vice-president, secretary, treasurer, and the
three supervisors constitute this board, have charge of all
the affairs of the bank, and serve as the credit committee to
pass on applications for loans and attend to the outstanding
loans. Mr. Eobinson's banks do not separate the control,
management and supervision into three distinct bodies to act
as checks against one another in the way which generally
prevails ia European cooperative systems. The banks do not
receive deposits. Their business is confined to granting loans
to members for amounts and terms not exceeding $100 or
six months. Every loan must be secured by the promissory
note of the borrower indorsed by one or more responsible
parties.

The members of the banks are all Jews, and as a rule
are also members of some other Jewish cooperative or social
association in their neighborhood, which are banded together
into the Federation of Jewish Farmers of America. This
body, which Mr. Eobinson plans eventually to make the cen-
tral organization for all Jewish farmers in America, is gov-
erned by officers elected by the adhering associations and

454 EUEAL CREDITS

a few individual members. In general purpose it is similar
in its small scope to the Imperial Federation of Germany,
but in addition it maintains a purchasing bureau for buying
farm equipment and supplies, and supports itself mainly by a
small percentage added to the wholesale prices at which it
makes sales to members and adherents.

These 18 Jewish banks in June, 1914, had a total mem-
bership of 549 ; the smallest had 21 members and the largest
48. The number of shares issued was 1,889, of a face value
of $9,445. The assets aggregated $29,488, which was $1,887
more than the liabilities. The total of loans granted to date
was $120,416 and the amount outstanding was $27,036. No
losses have been sustained by these Jewish banks. Each
bank has received an advance at two per cent of twice its
paid-up capital from the Jewish Agricultural and Industrial
Aid Society. The number of members belonging to these
little banks appears insigniiicant, but it assumes importance
when viewed with the fact that there are only 3,718 Jewish
families living on farms in the United States. This means
that more than one out of every six heads of families is a
member of a cooperative credit bank. There are estimated
to be 18,590 souls in these families, a mere drop when com-
pared with the entire rural population, yet they are the fore-
runners in the United States of an organized agricultural
cooperation based on the credit society.

There were Jews in America when New York was a
Dutch possession. A Jew, Abraham de Lyon, introduced silk
and vine culture into Georgia from Portugal, and Major
Manual Noah, the famous Jew of the Eevolution, appears to
have been the first to attempt to establish cooperative farm
colonies in the United States. In 1820 Major Noah bought
17,000 acres on Grand Island in the Niagara Eiver, and
granted allotments to a group of his coreligionists. Nothing
of this colony remains but a corner-stone. In 1881, 60 Rus-
sian Jewish families were colonized on 5,000 acres on Sicily
Island, Louisiana. A flood swept away their belongings and
they dispersed. In 1882 other colonies were established in
a number of states. Twenty families were located in what

GEEAT BEITAIN AND IRELAND, ETC. 455

is now Davison County, Sontli Dakota. The Hessian fly,
droughts and haU destroyed their crops and so they left.
Thirteen families were placed on government land in Tre-
mont County, Colorado. Mountain torrents menaced their
lives and they too abandoned their colony. A tew settlers
gathered in Douglas county, Oregon, but stopped farming and
took to selling railway ties ; when the railroad was completed
they boarded the train and disappeared. Seventy-two fami-
lies preempted homesteads in Burleigh County, now North
Dakota. Prairie fires and bad crops caused them to give up
the struggle, and most of them became residents of Devil's
Lake. A colony in Hodgeman County, Kansas, and three
other colonies were disbanded in 1886.

Of all the colonies founded prior to 1890, only the colo-
nies in New Jersey survive, and they are industrial as much
as agricultural, their members working in cooperative shirt
factories and cigar factories. The colonies more recently
established, however, are distiactly agrieidtural, while the
groups which are rapidly supplanting the native stock in
some of the coTinties lying near to New York City confine
themselves to farming, and are shovsdng adaptability to agri-
culture. They are mostly cooperative.

In 1911 there were known to be 828 families of Jewish
farmers in western Canada, most of whom were living in
cooperative groups. In Argentina a Jewish agricultural col-
ony was founded at Bntre Eios in 1849 by Baron de Hirsch.
There are now 3,777 Jewish families on farms in Argentina,
and 50 families in Brazil. The number of Jewish farmers
in all Europe west of Eussia is estimated at less than 3,000.

CHAPTEE XXXII

THE PEINCIPLES OF COOPERATIVE CEEDIT AND THEIE
APPLICATION

Spread of Cooperative Credit in Europe and Asia. — ^Building and
Loan Associations and Savings Banks in the United States. —
Mutual and Cooperative Insurance. — No Rural Cooperative
Credit Systems in This Country. — Characteristics of European
System. — Two Classes of Rural Credit Societies: Limited Lia-
bility with Shares and Unlimited Liability Paying No Divi-
dends.— Simple and Uniform Legislation Desirable. — ^Function
of Cooperative Systems to Ueceive Deposits and Accord Credit
on Security Other Than Real Estate. — Popular Misconceptions
as to European Societies. — Advantages of a Cooperative Credit
Society. — Credit for Members and Collective Purchase and Sale.
— Threefold Structure of European System. — ^Procedure in
Formation of a Rural Cooperative Credit Society. — The Develop-
ment.— ^Necessily for New Laws in United States.

Although cooperative credit without real-estate security
has been implanted in all European countries except Norway,
Denmark, Luxemburg, Monaco and Greece, has been intro-
duced into Africa, Asia, America and some island colonies,
and is now being agitated for agriculture throughout the
civilized world, it is nevertheless of recent growth in most
countries, and has attained great success in only a few. No-
where has its first organization been due to the farmers or
those directly benefited by it. Its original organizer in each
country has been some one man or set of men above the
necessity of borrowing through it and not engaged in agri-
culture.

In Germany it was Sehulze-Delitzsch, a judge, in 1850;
in Austria, Ziller, an economist, in 1858; in Belgium, d'An-
drimont, an economist, in 1864; in Italy, Luzzatti, an econo-
mist, and in Eussia, Louguinine, a priest, in 1866; in Hun-

456

I^EINCIPLES OF COOPERATIVE CREDIT 457

gary. Count Karoiyi, and in Switzerland, Traber, a clergy-
man, in 1887; in France, Durand, a lawyer, ia 1893; in
Bulgaria, an instructor, and in Servia, Aniramoviteh, an
economist, in 1894; in Roumania, the state, in Holland, the
Catholic clergy, and in Ireland, Sir Horace Plunkett, in
1895 ; in Canada, Desjardins, a journalist, in 1900 ; in Spain,
■Gomez, a priest, in 1901; in British India, the state, in
1904; in the United States, Desjardins again, in 1908; in
Japan, the state, in 1909; in Egypt, Lufty Bey, an economist,
in 1910. In every other country, likewise, it was some pub-
lic-spirited man acting singly or with others who organized
"the first cooperative credit society. This first society was
not agricidtural in all cases. As a rule the farmers did not
Tise cooperative credit until the city folk had shown the way.
The countries in which cooperative credit is most highly
■developed are Germany, Austria, Belgium, Russia and Italy,
where also it has existed the longest. It has made substantial
progress among farmers in Switzerland, Japan and British
India, and under state aid in France and Hungary. In the
last two coimtries the credit societies do not attract enough
deposits and share capital for their operations, nor do they
obtain many loans from private sources, and it is problemati-
cal what would happen if the aid of the state should be with-
drawn. In Servia, Roumania and Bulgaria recent wars have
stopped its advance, which was very rapid during the preced-
ing decade on account of the aid and intervention of the
state. The annual figures of the number, assets and mem-
Taership of the credit societies in Germany and Austria are
very large, but the record of neither of them equals that of
-the United States in cooperative finance and mutual banking.
In 1912 there were in the United States 6,273 building and
loan associations, with 2,516,936 members and $1,137,600,-
648 of assets, and in 1913 more than 623 mutual savings
banks, with 8,101,238 depositors and $4,104,639,651 of re-
sources. The building and loan associations are organized
for thrift and a specialized kind of credit based on urban
real estate, and the mutual savings banks for thrift and for
credit not necessarily accorded by preference to members.

458 EUEAL CEEDITS

In neither class of institution is credit agricultural or so dif-
fused as in European cooperative systems; nevertheless, the
figures of the American institutions surpass those of aU
Schulze-Delitzseh and Luzzatti banks in Europe and the
German landschafts combined in respect to the number of
persons and aggregate of wealth.

In making this comparison between numerical strengths
the depositors of the American mutual savings banks have
aU been considered as members. This is not entirely cor-
rect, for most of the mutual savings banks are managed by
self-perpetuating boards of trustees, while the credit they
accord does not go by preference to depositors. The same
objections may be raised, however, against those Schulze-
Delitzsch and Luzzatti banks which have grovm so large that
all members do not exercise their voting privileges. There
is very little difference in spirit and business methods be-
tween such banks and the American mutual savings banks,
since in both the granting of loans to members is second-
ary to the encouragement of thrift, the accumulation of
deposits and the safe and profitable investment of assets.
The rise of the Schulze-Delitzsch and Luzzatti banks was
due to the fact that at the time of their origin there were in
Europe comparatively few privately managed banks for small
savings. Today the larger portion of the deposits of the
plaia people in Continental countries go into public or com-
munal savings banks and postal savings banks, and are in-
vested in government bonds or placed in the possession of
the government so that the state may have control of them
in the event of national emergencies. The moving purpose
of establishing these urban cooperative banks often has been
to transfer banking from public or semi-public banks into
the hands of the people and to give them the management
and use of their own money. An element of social and po-
litical reform is not uncommon in European cooperation.
The people's banks" of the Schulze-Delitzsch and Luzzatti
types in a measure occupy in their respective countries the
place held in the United States by the mutual savings banks,
the medium-sized national banks and state-chartered banks.

PEINCIPLES OP COOPEEATIVE CEEDIT 459

Generally speaking they are not small credit institutions for
feeble folk. Their membership is recruited from the same
classes of people as belong in the tJnited States to the build-
ing and loan associations and the savings banks. The
American enthusiasts who are hoping to improve the condi-
tion of the shifting and thriftless population by means of
cooperation wiU be disappointed to find that this has been
accomplished in Europe only in spots where the work is sus-
tained by the ceaseless and unrequited toil of philanthropists
devoting themselves to the arduous tasks as priests to their
mission.

Besides being supreme in cooperative fimance and mutual
banking, the TJnited States outranks the world also in mutual
and cooperative insurance. There are in force in the United
States close to $25,000,000,000 of policies in such insurance
companies, not including the 1,867 farmers' mutual insurance
companies of various kinds, whose numbers are rapidly in-
creasing in the upper Mississippi Valley. The New York
Life, the Mutual Life, the New England Mutual and the
Northwestern Life insurance companies, to mention only a
few examples, are cooperative except for the one point that
voting may be done by proxy. With their hundreds of thou-
sands of policyholders and hundreds of millions of assets
they are not only the greatest cooperative institutions but are
also among the greatest and soundest and in actual results
the most benevolent institutions in the world. The figures
for insurance alone in the United States make those of coop-
eration and mutuality in other countries appear of secondary
importance. The cooperative features of the administration
and management of an institution, however, invariably be-
come correspondingly less as it increases in size, no matter
how much care has been taken in making the organization
perfectly cooperative. This is true of a bank or of any other
kind of concern. The majority of the policyholders of the
large American insurance companies do not exercise their
voting privilege, have no personal acquaintance with their
oflScers, and know very little about the principles of insur-
ance or the ways in which their funds are invested, and thus

460 EURAL CEEDITS

through the lack of interest of the policyholders the coopera-
tive spirit is weakened. This does not mean necessarily that
their affairs are handled any the worse because of that fact.
It simply shows that undiluted cooperation cannot be prac-
tised except by relatively small groups of persons.

Mutual telephone companies have had a remarkable de-
velopment among American farmers during the last score
of years; himdreds of them are now in existence. American
farmers have 2,165 cooperative creameries, 336 cooperative
cheese factories and 2,026 cooperative elevators and granar-
ies, besides many fruit growers' associations and purchasing
and selling agencies organized or operated on a cooperative
plan. The progress already achieved by the United States
in mutual and cooperative finance, banking and insurance in
the cities and in rural cooperation for insurance, production
and distribution is frequently overlooked, but it has a bear-
ing of great significance on the question of rural cooperative
finance because it proves that cooperation and mutuality are
congenial to the spirit of the American people and may be
applied in their most complicated forms to the ordinary
affairs of life.

But although well supplied with urban institutions for
thrift and credit and with great numbers of rural associa-
tions of the kinds mentioned, the United States has nothing
to compare with the rural cooperative credit systems which
are being developed in Europe. There is very little mixing
in Europe of urban and agricultural business. Each class
of business has associations of its own. For agriculture these
associations are parts of elaborately organized systems, created
in either of two ways. Sometimes the farmers belong in the
first instance to a large association for safeguarding and pro-
moting their general interests, and as members of this large
association form local associations for industrial, mercantile
and credit purposes; this is called syndicalism and the sys-
tem prevails in France, Belgium, Portugal, and to some ex-
tent, Holland. Sometimes, on the other hand, the farmers
acting as independent individuals first form the local asso-

PRINCIPLES OF COOPERATIVE CREDIT 461

ciations, whieh in their turn form xmions and regional asso-
ciations out of which are formed national associations, cor-
porations and federations; this process of building up from
the ground is called decentralization, because it leaves to
the associations in each union, region and constituent locality
the control of their internal affairs. This is Germany's sys-
tem, although the Raiffeisen associations which have declared
for the principle have not yet completed their transforma-
tion.

But whatever the arrangement, these agricultural coop-
erative systems, whether aided by the state or depending
upon self-help alone, have the credit societies for their basic
units, except in Denmark and Ireland. In Denmark agri-
culture is highly organized cooperatively but mainly for
the manufacture and marketing of milk products. The
returns from these with middlemen eliminated are quick
and profitable, creating a large volume of immediately avail-
able circulatory capital for the farmers. Whatever other
funds they need may be acquired easily by loans for long
or short time from the excellent Danish land mortgage asso-
ciations and the savings and ordinary banks. Consequently,
as there is no need for cooperative credit societies, none
exists. In Ireland also the majority of the cooperative
associations are dairies and creameries; they are fairly well
served by the ordinary banks, and in the absence of a
pressing necessity the Irish farmers are lax in their efforts
to develop cooperative credit.

The main characteristic of this basic unit or local rural
cooperative credit society is that the area from which mem-
bers are recruited is so restricted that all members or at
least the officers may know personally every person ad-
mitted to membership. Indeed, this is the first essential,
for not otherwise can be obtained that full and regular
attendance at meetings and that personal acquaintanceship
making for friendly relations and mutual confidence which
create and maintain the true spirit of cooperation. The
number of members rarely exceeds 150, while frequently
it is 50 or under. Often the members all belong to the

463 EUEAL CEEDITS

same race, religion or political party, and thus there may
be several societies operating mthin the same area. Indeed,
it is best for the society to impose qualifications for mem-
bership, since the resulting homogeneity assures harmonious
action. It matters not how exclusive the local societies or
the unions w^hich they form may be, because when they
connect with the higher organizations which look after the
general welfare of the farmers in the system they will
reach a stage where there is complete identity of interests
among all.

The rural credit society is not an aggregation of capital but
an association of persons, admitted usually upon vote of the
managers, which must be unanimous. In France, members,
individual or associational, must be farmers or persons en-
gaged in industries or vocations connected with agricul-
ture. In Germany this requirement is not imposed, but in
every country members must be residents of the area over
which the society in which they apply for membership
operates, and they forfeit membership upon moving out of
that area or upon violating any of the conditions set forth
in the by-laws. Generally a member must subscribe to at
least one share, of a value of $10 more or less, to be paid
in at entrance or by instalments vnthia one or two years.
In the German Eaiffeisen system the share is simply a
nominal compliance with the law, siace the original founder .
did not believe in share capital; but Eaiffeisen's principles
in this particular are now allowable by law and practised
only by the rural societies in Italy and a few other coun-
tries. Multiple holdings and multiple voting up to a cer-
tain limit are permitted in some countries, but as a ride a
member is entitled to only one vote, to be exercised in per-
son and not by proxy, no matter how many shares he may
hold. The most modern laws do not prescribe a limit for
dividends. The shares in effect are simply certificates of
long-term deposits which members may make and withdraw
on a few weeks' notice, and the societies may distribute
among them all the annual net profits after setting aside a
specified portion for the reserves. It may be said that the

PRINCIPLES OF COOPEEATIVE CEEDIT 463

limitation of dividends to a certain annual rate exists only
in state-aided societies or in those whose shares are of
merely nominal value. Societies which have no shares of
course pay no dividends.

The presence or absence of shares divides the rural credit
societies into two classes. Societies with shares aU are on
the limited-liability plan; that is, in the event of their
failure a member may lose only the amount paid in on his
shares or is liable to pay only one or more times the full
face value of his shares as specified in the by-laws. In
societies without shares or in which the shares have only a
nominal value, the liability is unlimited; that is, the mem-
bers are jointly and severally liable for all obligations in-
curred by their societies, and this liability may be enforced
by a society's creditor against any member whom he may
choose to sue, or else it is enforceable in bankruptcy by
assessments equal on all members continued until the close
of the proceedings. Members of an unlimited-liability society
who have been compelled to pay more of its debts than
their just portions have a right of recovery for the excess
against fellow members whose assessments have not been col-
lected. There is another difference of vital importance:
The unlimited-liability society having no shares naturally
pays no dividends; all the profits belong to the society and
not to the individual members and are placed in the re-
serve; hence the reserve rapidly increases in size in a sue
cessful society and serves not only as a guaranty fund but also
as a working fund. In both classes of societies the reserve is
indivisible; that is, in the event of dissolution it is not
distributed among members but is used for forming a new
credit society in the same locality or is devoted to some
agricultural object of general benefit to the system.

The rural credit societies are financed by surpluses and
reserves, by deposits received from members and outsiders,
by money borrowed on the collective liability of members, by
small admission fees (except in the German Eaiffeisen so-
cieties), and by share capital in societies which issue shares.
Its variability due to payments and withdrawal on shares

464 EUEAL CEEDITS

■vroiild make such a capital an unreliable fund for steady
operations if it stood alone; consequently the societies are
required to reinforce it by raising the reserves to a sub-
stantial figure. By the French law three-fourths of the
net profits must be written each year to the reserve until it
equals one-half of the capital; in Germany the by-laws of
each society must prescribe the ratio at which the one fund
must be maintained to the other. The societies do not enjoy
many special privileges. The few which are accorded, how-
ever, are important, comprising tax exemptions for deposits
and freedom from or reduction of stamp duties and fees,
60 that the bills of exchange and other negotiable instru-
ments, usually for small sums, may be executed, accepted or
discounted at less expense than is connected with such trans-
actions by ordinary banks.

In aU European countries there is a marked similarity
in the administration of cooperative credit societies. The
supreme authority within the society is lodged in the mem-
bers regularly assembled. By a majority vote they may
set aside any act of the ofiBcers and exercise directly all
powers of the society, and by a larger vote, usually three-
fourths, they may dismiss oflScers, amend the by-laws or dis-
solve the society. AU officers are elected by the members.
As a rule the committee of management is composed of
three members, one of whom is retired or reelected each year.
One of the managers is designated as chairman or president.
Separate and distinct from this body is a board of three
supervisors elected in the same way. Their duties are to
keep vigilant watch over the society's affairs and to oversee
and inspect the work of the managers ; they may veto the act
of any oflBcer or employee and even suspend him until the
matter is brought before a meeting of the members. The
compensation of the managers and supervisors is always
small and in some cases they receive none, while they are
excluded from the credit facilities of the society and from
serving as sureties for other borrowers, except upon per-
mission granted at a meeting of the members. The secre-
tary-treasurer is not considered as an ofiBcial; he is a paid

PEINCIPLES OF COOPERATIVB CEBDIT 465

employee chosen by the managers and supervisors. Usually
he must enroll himself as a member upon appointment.

Besides these officials and employees an auditor is ap-
pointed by the court or by the union or federation of the
system to which the society belongs. If appointed by a union,
he is invariably a trained and experienced expert, and in
addition to his ordinary functions, he acts as adviser to
protect the society from bad business practices and from
deviating from strict cooperative principles. Each society
is inspected by an auditor at least once every two years.
Certified copies of the annual reports checked by the auditor
must be filed in a special registry in the district court and
published in the official newspaper. The articles of agree-
ment must be filed and published in a like manner, and
a list of members, showing the shares, if any, held by each,
must be kept up to date in the registry. Every member
must declare in writing his adherence to these articles in
a declaration which is a separate paper from the subscrip-
tion for shares. This outside audit and the official regis-
tration and publication enable all who deal with a society
easily to obtain correct and exact information of its af-
fairs. They have been the greatest factors in maintaining
the solvency of the cooperative systems of Europe.

The best legislation does not comprise one law for credit
societies and another for societies for other cooperative pur-
poses, but consists of one omnibus act governing coopera-
tive societies of all kinds. No matter whether the socie-
ties are mercantile, industrial or financial, or whether they
are organized on a limited- or imlimited-liability basis
with or without shares, the legal requirements relating to
the administration and management are the same, and a
farmer who joins any of them knows just how to act and
what to expect. There is no need for the states of the
United States to enact special legislation for credit socie-
ties. If each state had a single law on cooperation, embrac-
ing societies extending credit not based on real estate, the
organization, administration, management and business
methods of cooperative societies for all objects and of all

466 EUEAL CEEDITS

classes would become standardized in the state, and the
farmers, saved from the necessity of studying complex laws,
eventually would leam how to apply cooperation to all their
activities in accordance with simple and well known statu-
tory regulations. Cooperation cannot progress easily and
rapidly unless these regulations are simplified and stand-
ardized. The farmers must be brought to understand that
the transactions of a credit society are in fact less com-
plicated than those of any other kind of cooperative society.
In all cooperative systems not aided by the state the
first two functions of a credit society are the reception of
deposits from members and outsiders and the according of
credit to members on security not based on real estate. In
Canada credit societies do not accept deposits from out-
siders, but there is no good reason for this limitation since
deposits from the outside, being in effect borrowed money
subject to call at will or on short notice, constitute the
greatest source of capital. In agricultural societies the
stimulation of thrift is not to the same extent as in urban
societies the purpose of attracting deposits. Indeed, this
purpose is incidental, for the prime reason clearly is that
deposits are the easiest way to raise funds for financing
members in their various undertakings. The agricultural
credit societies are far from being mere benevolent institu-
tions for helping poor and feeble folk or from being train-
ing schools for persons not possessing industrious, econom-
ical and orderly habits. They are, it is true, about the
only means through which such classes can be permanently
benefited and improved; nevertheless the substantial farm-
ers preponderate in the membership in the places where the
societies are the most numerous and successful.

A great deal of misinformation on European cooperation
has crept into the United States. The societies, it has been
asserted again and again, grant cheap and easy credit, at
interest far below current rates, down to three and even
two per cent, upon character alone. No statement could be
farther from the truth. Only in Italy is character credit

PEINCIPLES OF COOPEEATIVB CKEDIT 467

ever accorded, and there, too, only now and then by Luz-
zatti's urban banks in the form of 'Tionor loans" to indigent
persons out of a small portion of their profits which they
can afford to lose set aside each year as a pure act of
charity. With this small exception there is no cooperative
credit society in Europe which does not demand of bor-
rowers as safe security as is exacted by an ordinary bank.
Moreover, interest rates are never below those on sound
and marketable securities except where the state has ad-
vanced public fimds to be distributed in free or cheap loans.
Again, there is a mistaken notion that a Hmit must be
set to the rate of interest and also of dividends. The
state of course designates the interest rate at which the
moneys it advances shall be loaned and invariably stipu-
lates that the societies it selects for the distribution shall
not, if they have shares, pay more than a certain per cent
in dividends. This is done to prevent the society from
making profits at the expense of the state's intended bene-
ficiaries. Occasionally also societies not aided by the state
limit dividends, but never on account of any antipathy to
money. When this is done it is for the purpose of shifting
money obtainable from shares over to deposits and thereby
establishing a fair balance between the shareholding and
the borrowing members, particularly in societies where
multiple voting is allowed. Ordinarily the societies may
charge interest on loans as high as that allowed by the
usury laws but in fact they never touch that limit.

The nearest the societies come to extending credit on
character is when they permit a member to draw against
an uncovered open account up to an agreed amount. Only
those members who have unencumbered and readily attach-
able property, however, are allowed this privilege, while
the agreed amount of the account is fixed at considerably
less than the ascertained value of their property. Chattel
mortgages and pledges of personal property are not un-
common, while the credit societies have been tempted even
to assist members to acquire small holdings on real-estate
mortgages and have invested their surpluses in such secur-

468 EUEAL CEEDITS

ities. Serious consequences have resulted from this prac-
tice. The entire rural cooperative system of the Grand
Duchy of Hesse has been shaken to its foundation by thus
tying up funds of the credit societies, but bitter experience
is gradually teaching cooperatives to let real-estate mort-
gages alone. The preferred security is the indorsement of
one or more responsible parties, and with the rare exceptions
noted, the societies wUl not extend credit on anything less.
The societies themselves are able to borrovr upon no other
security than the collective liability of their members, and
this is what is meant in speaking of the character credit
which is available for cooperatives.

The interest rate for loans, discounts and acceptances by
European rural cooperative credit societies after they have
been firmly established is never more than that charged
inerehants by the ordinary banks in their locality, while in
fth& German Eaiffeisen societies it may be less than the com-
mercial rate, for a reason already explained. The American
farmers should disabuse their minds of the stories recently
told them of the fabulously cheap money in the European
credit societies. There is enough good in cooperation to
assure its spread, when once it becomes understood, through-
out the United States without the invention of fictitious ad-
vantages. The granting of agricultural credit is expensive
to the ordinary lender because of the costs of examining
the securities offered and of making recoveries and is not
profitable unless it yields an interest rate sufficiently high to
cover all costs and risks. Furthermore, it is objectionable
because of the slowness of repayment, and the farmer finds
himself paying renewal fees, commissions and bonuses in
addition to the written rate, to say nothing of his feeling
more like a beggar for favors than a claimant of rights
when the period of the loan expires. Consequently he
avoids the money lenders and the banks as much as pos-
sible, and too often he buys his implements and supplies
on time, without knowing what the merchant is charging
him for deferred payment, and lets his account at the
country store run indefinitely to be settled finally by turn-

PEINCIPLES- OP COOPEEATIVE CEEDIT 469

ing over produce at the storekeeper's price. When the
farmer cannot get along any longer in this fashion, he
raises money for his debts by placing a three- or five-year
mortgage on his homestead with little hope of paying it ofE
within that time. If a crash comes he blames the monetary
system and the capitalists.

All these bad practices and troubles would disappear
if cooperation were introduced. There would be no more
commissions and bonuses or difficulty in getting renewals
or new loans, while the interest rate would drop eventually
to a figure as low as that at which the most solvent man
in the nearest city could obtaia credit. The farmer should
not expect the rate to fall below that figure because the
money lent to him comes from the deposits and share pay-
ments of his neighbors or was borrowed on their collective
liability as fellow members, all of which must be repaid
and remunerated at reasonable interest rates. However,
the rural cooperative credit society does not pay big sal-
aries or dividends to outsiders, while it saves expenses by
being situated in the locality in which it transacts business,
so its outlays are small, and this inures to the benefit of
its borrowers.

But borrowers are not the only persons in a cooperative
credit society, nor are the reduction of interest and easy
terms on loans the only advantages which it affords. The
belief prevailing in the United States that a rural coop-
erative credit society is an association composed entirely
of borrowers or of persons expecting to become borrowers
is true only for the state-aided systems of France and
Hungary, which small farmers join in order to obtain cheap
loans from the free money supplied by the governments.
The French or Hungarian farmer gives but slight atten-
tion to his society when once he has received his loan from
the Government; he makes no deposits and buys no shares
if he can escape doing so, and leaves the future to the
next farmer who may want a lift from the Government.
In Germany, however, where the systems were created and
are maintained and managed by the farmers themselves

470 KUEAL CEEDITS

and where in consequence of that fact agricultural coop-
eration has been the most highly developed, the farmer
when he joins a credit society joins to stay, becomes an
active member, considers himself honored if elected one
of its officers, uses it as a depositary for all his savings
and disposable cash, and resorts to it for facilitating his
financial transactions of all kinds.

In Germany the rural cooperative credit society is far
from being a mere thrift-stimulating and money-lending in-
stitution. It is not only unexcelled in these two capacities,
but it also renders banking services of every description to
its members. Small though it may be, it is one of many
thousands of similar basic units which form or help to sus-
tain a mighty system of local, regional and national coop-
erative banks, factories, supply stores, and selling and mar-
keting agencies, aU bound* together and guided by unions,
provincial federations and national federations organized for
subserving, protecting and promoting the various interests
of agriculture. Most of the money for carrying on the
business of this system comes out of the local cooperative
credit societies and into them again finally flow the profits
distributed among the- farmers. The transactions between
individuals of the same neighborhood, between societies and
the regional banks, between the regional banks and the
central and national institutions, and between the latter
and the outside world are represented by negotiable instru-
ments and bankable paper which pass back and forth through
these channels with the movement of trade, the purchase
of supplies, the sale of produce and commodities, and aU
the exigencies calling for the transfer of money from one
place to another. The advantages gained from this inter-
relation and united action among the farmers of Germany
are so great that the local cooperative credit societies would
continue to exist even if they did not have a borrowing
member. Indeed, the richer the members become, and they
have become richer, and the less need they have of credit
except for the requirements of trade and commerce, the
larger and more powerful the system itself becomes through

PEINCIPLES OF COOPEKATIVE CEEDIT 471

the increase in the number, membership and resources of
these now indispensable financial and banking xm.its in
agricultural Germany.

The power, elasticity and solidity of the two German
rural cooperative credit systems are a striking and com-
plete proof of the wonderful value and effectiveness of co-
operation for farmers. They have spread over the larger
portion of the Empire without weakening their framework
at any point. Although somewhat artificially and faultily
built at the top and open to domination by ambitious
leaders, they have recovered from financial depressions,
faults of management and even the shock of war with a
resilience possible only for the strongest institutions, and no
doubt is now ever raised as to the integrity or ability of
their components to perform any engagement they under-
take. Yet these systems are based on small local credit so-
cieties, each apparently so insignificant that its only out-
ward and visible sign is a desk and strongbox in a room
in some farm home or country school. This unit owes no
allegiance which it cannot dissever at wiU, and its own
members also may retire and withdraw their deposits and
shares or even dissolve the society practically at will, for
it is merely a club of a few friendly neighbors associated
under statutory formalities of rural simplicity.

Such an easily formed and easily dissolved little asso-
ciation as this may not appear fit to serve as the basic
imit in a great financial, commercial and industrial sys-
tem. N^evertheless, in Germany it attracts deposits as read-
ily as a savings bank or a postal savings bank, remits what
it does not need to other societies, draws against their sur-
pluses to supply its own deficiencies, and borrows when
necessary from outside banks or money lenders at the lowest
current interest rates for making loans to members or ad-
vancing funds to other societies and higher organizations
in the system. Thus its influence and relations may extend
beyond its immediate neighborhood to the farthest parts of
the Empire. As a rule the German rural cooperative credit
societies have no trouble in finding all the money they need.

473 EURAL CEEDITS

because the collective liability of their members, standing
all for one and each for all, has been proved by the test of
years to be a security equal to the best. Most of the money
comes from members, however, and naturally so because
most of the rural producers become members.

In coimtries where the farmers apply cooperation not
only to credit and banking but also to industrial, mercan-
tile, commercial and all other activities, the rural coopera-
tive credit society has two general uses for its funds. The
first is to extend credit to members, and the second, to
finance undertakings for collective purchase, collective
sales and the manufacture in common of marketable com-
modities out of farm produce. The credit accorded to mem-
bers consists mainly of three-months loans renewable three
or four times if necessary. If loans for over a year are
granted they are repayable in instalments and recallable by
the society on a few weeks' notice. The most usual method
of financing the undertakings just referred to is by buying
shares or bonds of other cooperative associations organized
for such special purposes. Generally the rural cooperative
credit society and its individual members acquire shares
in these other local associations, then these associations and
the rural cooperative credit society acquire shares in the
regional banks and regional associations, and so on up to
the top. Thus all are welded into a united system.

The profits realized in the system are distributed as
dividends by the higher institutions to the local associations
and finally reach the farmers through their local credit
societies. If the local society has shares, it also distributes
dividends; if it does not have shares, the gains which fall
to it all go into the reserves, gradually giving it more funds
of its own to lend to members. By being thus relieved more
and more from the necessity of borrowing on its own part,
the rural cooperative credit society is able as time pro-
gresses to charge lower interest rates or pay larger dividends
to members. The savings resulting from the buying of
supplies at wholesale prices, the marketing of produce and
the manufacture and distribution of commodities without

PEINCIPLES OF COOPERATIVE CEEDIT 473

the interyention of middlemen and outside merchants are
advantages which the societies directly or indirectly afford
and are indeed of greater value to members in general than
cheap and easy credit. All the German Eaiffeisen credit
societies and many of the other rural credit societies, instead
of forming other local associations to exist alongside of them,
have trading and banking as their dual function, and make
collective purchases for their members and sometimes col-
lective sales. Locally this has proved to be the best ar-
rangement, since it centers the various activities of the local
group in one society under one set of oflScers and employees,
thus saving expense and making an arrangement more con-
venient for members. The supplies bought by a member
are either charged against his account or else are sold to
him on time evidenced by a promissory note ; there are book-
keeping and papers for only one transaction instead of for
two transactions as would have been the case if the business
had been done by separate associations.

The European agricultural cooperative systems which
embrace banking all have the same kind of structure and
scheme of arrangement. Eirst the farmers are organized
locally by belonging to credit societies having the dual func-
tion of banking and trading, or else they belong to credit
societies and also to other local associations connected with
the credit societies. These groups of local societies and asso-
ciations form regional banks and associations and all are
bound together in what are called unions. The unions,
known as syndicats in France and other Latin countries, are
the second degree of organization in the system, and they
are the most important factors in extending and preserv-
ing it.

In some instances the unions do collective purchasing,
but the approved practice is to keep the union free of
business affairs, so that it may be devoted to its chief and
especial purposes of supervision, inspection, auditing, propa-
gandism, the encouragement of the formation of new credit
societies and associations for other cooperative purposes,
and the defense and promotion of the general interests of the

474 EUEAL CEEDITS

organized farmers within its region. The societies and asso-
ciations of the region create regional banks and associa-
tions with headquarters at the place where the union has
its headquarters, which are often managed by officers of the
union. The officers of the regional banks and associations
and of the unions, elected by the adhering local societies and
associations, are drawn from among the most substantial and
prominent farmers of the region and from the priests,
preachers, bankers, large landowners, and influential busi-
ness men identified with agriculture who not infrequently
are allowed to join the local cooperative credit societies to
give them standing.

The third and final degree of organization in the sys-
tem comprises the federations created for linking the imions
together, for bringing about the formation of central asso-
ciations and banks, and for directing and enlarging the
system in its national scope. The two German agricul-
tural cooperative systems are the only ones in Europe which
are extensively developed in the third degree of organization,
and these two systems are the results of many years of
slow upward growth. Such an elaborate system cannot
have a rapid growth if it is expected to be sound and
enduring. It is doubtful whether outsiders, even with the
aid of the state, could create one by beginning at the top
and working down. If the farmers of the United States
wish such a system, it is in their power to start it them-
selves at the grass roots by forming small local cooperative
credit societies. If they are not hasty in action or over-
ambitious, in due course of time by gradual steps they will
become firmly organized in local groups, in regional groups
or unions, and in federations with local, regional and central
associations and institutions for finance and all their other
needs and necessities.

A rural cooperative credit society is the easiest kind of
an association to form and operate. As one illustration
of many that might be used, let us assume that there are 50
farmers living along a five-mile stretch of road leading out

PEIISrCIPLES OF COOPEEATIVE CEEDIT 475

from a town in an agricultural region. They meet at the
district school, church or some convenient farmhouse, and
form, not a corporation, but rather a club, and elect from
among themselves two men to act as managers and three
as supervisors and another to serve as secretary-treasurer.
The secretary-treasurer man lives at the end of the road
farthest from town, and every Saturday morning he hitches
his team to his wagon, stops at the giate of his first neigh-
bor, takes his savings, gives a receipt, and jots down his
order for what farm supplies he needs. Thus he goes down
the road, stopping at every gate. When he gets to town he
deposits the money collected in the name of the society in the
best bank. Then he goes to some wholesale house, loads
his wagon or wagons with enough supplies to fill the orders
given to him, draws a bill on the bank in payment, drops
the supplies ordered at each gate on his way back, and
when he reaches home, credits the members with their cash
and debits them with the wholesale price of the supplies
received.

At the end of the month, in the school house or at the
church an hour before service, the managers hold an open
meeting attended by all members who desire to be present.
An extra man perhaps is engaged to help in the collecting
and hauling; the accounts of the secretary-treasurer are
checked up, and a committee is appointed to recruit new
members living along the lanes crossing the road and to
induce persons not qualified for membership to become de-
positors. Since the members and depositors save more
than they spend, the society's balance at the bank begins to
grow and it is soon ready to grant a few loans. Some
Saturday evening or Sunday morning the managers consider
applications and approve that which appears most safe and
urgent. If this is done at a called meeting, however, the
members may overrule the act of the managers and take
any other course they desire because the supreme power of
the society is always lodged with them.

Now the applicant is not granted the loan at any lower
interest rate than prevails in the locality, because the society

476 EURAL CEEDITS

is not a benevolent institution in any respect. It is paying
interest on deposits received, out of which the loan has
been made, it has some small expenses to meet, as the sal-
aries of the secretary-treasurer and employees, rent, etc.,
and above all it is trying to accumidate a reserve so as to
protect members against losses. All this must come from
the interest charges which, with the small profits of the
trading business, are the chief sources of its income. Event-
ually, however, borrowers may be granted loans at a slightly
reduced rate, when the increasing reserve strengthens the
standing of the society and enables it to attract cheaper de-
posits and rely more largely on its own unborrowed funds
for making loans. But a borrower is never charged com-
missions or costs for examining the loan, because the man-
agers are neighbors and are supposed to have knowledge
of his solvency and the value of the security offered, while
he may obtain longer periods and easier terms for renewal,
since these neighbors understand agricultural conditionsi
better and will be more considerate with him in hard times
than woxdd the ordinary banker. Moreover, there are no
heavy legal expenses in the event of default because a bor-
rower would not dare to try to beat his neighbors out of
their Just dues if he expected to live in peace in the neigh-
borhood.

These benefits alone would make the society preferred to
the ordinary banks or private individuals as a lender, and
it would gradually increase its membership and absorb all
the business along that five-mile stretch of road. Then per-
haps it would need to borrow in order to take care of the
business, and this it could do without difficulty because
there would not be a banker in the town who would not
be wiUiag to lend on the collective liability of the mem-
bers all the money the society might require. Some of the
members might die, get sick, lose their farms, or move away,
but according to the law of averages by which the risks in
all business are determined, enough would remain to meet
every engagement of the society. Now these risks would be
practically non-existent either to members or to the lender.

PRINCIPLES OP COOPEEATIVE CREDIT 477

because, assuming that proper legislation existed, the masi-
mum of liabilities which the society might incur, either for
deposits, borrowed money or any other kind of obligation,
would be fixed by the articles of agreement and known to all.
Long before that maximum was reached the members when
they saw that a bad loan might eat up the reserve, might
settle the loss by a small pro rata contribution and change
the management or dissolve the society at once and begin
all over again. This is why there never has been a failure
in a Eaiffeisen credit society causing loss to a depositor or
a creditor; nor has there ever been any burdensome or
unequal assessments on members, because constant vigilance
prevents many bad loans, and the little losses which have
occurred have been met by raising the interest rates of the
borrowers or the wholesale prices of supplies sold to members.
Hence the EaifEeisen form seems to be the safest for
a rural credit society. There need be no shares, for why
should members wish to make dividends out of themselves?
The shares in a true cooperative society have no voting
power; that belongs to the membership certificate. The
share capital is simply time deposits serving incidentally and
only in part as a guaranty fund. In a Eaiffeisen credit so-
ciety the transactions are guaranteed by a portion of the
reserves, while the deposits are savings and current accounts
as in an ordinary bank; the Eaiffeisen society therefore has
one fund less to handle and consequently is less compli-
cated than an association with shares. Its members, if they
have idle cash, place it on deposit and draw interest at as
high a rate as that of any possible dividends on shares.
Shares and dividends create a distinction between invest-
ing members and borrowing members which interferes with
the harmony which ought to reign in an association of neigh-
bors and leads to corporation practices with profit as the
main object. Corporations or associations with shares exist
in agricultural cooperative systems and are practically in-
dispensable for the higher institutions which center around
the unions and federations, but there is not a system which
would not be better if its basic units were all little neigh-

478 EUKAL CKEDITS

borhood clubs, like the Eaiffeisen credit societies, without
shares or dividends. A Eaiffeisen credit society does not
strive to make profits out of the necessities of one class of
members to be distributed among another class. Its objects
are to reduce interest rates to fair figures, to make col-
lective purchases at wholesale prices, sometimes to make
collective sales, and to gather up the money made by the
farmers and their friends within a small defined area for
re-use within that area, so that the farmers may employ the
wealth which they create first for fijiancing their own under-
taldngs and then for helping farmers in other localities.

Now after the supposed credit society on that five-mile
stretch of road has been operating for a year, the farmers
on the next road, seeing how successful, safe and conven-
ient it is, would form a credit society, and so on with the
farmers on other roads. When credit societies had been
formed on all roads converging in the town, the managers
would get together and form a union to look after their
general interests. The first thing done by the union would
be to form a regional bank on the share plan, selling the
shares to the local credit societies and, if they are Tinable
to supply aU the needed capital, to individual farmers and
even outsiders. With the establishment of the regional
bank, the local credit societies would all be interlocked and
their resources would fiow from one to the other, the re-
gional bank serving as the means of communication among
them and with the outside world. After this financial net-
work had been spread the union would organize corpora-
tions or rather associations with shares for cooperative buy-
ing, selling and manufacturing, etc., and thus all the farm-
ers in that region would become organized cooperatively,
just as it has been done ia Germany. When this region has
been organized, other regions would organize in the same
way. The unions, with oflBcers consisting of experienced and
capable farmers and other persons identified with agricul-
ture, would see to the supervision, inspection and auditing of
their local credit societies and regional banks and associa-
tions, which would finally be linked together through the

PEINCIPLES OF COOPEEATIVB CEEDIT 479

tmions by state and national federations with central insti-
tutions. There is every prospect for enduring success for
such a system provided the component parts would avoid
real-estate credit and land transactions and keep their assets
in circulatory form, habitually extending only short-term
credit on easily negotiable securities.

There are no federal or state laws in the United States
■under which the farmers might organize themselves iato
systems with credit societies as the basic units. The laws
of Massachusetts on credit unions of 1909, of Texas on
rural credit unions of 1913, of Wisconsin on cooperative
credit associations of 1913, and of New York on credit
unions as finally enacted in 1914, provide for the organiza-
tion of associations intended for thrift and small credit for
feeble folk. Texas limits the loans to $200 at not over six
per cent for productive purposes, thus absolutely preventing
large undertakings, while the restrictive measures of aU four
laws render them useless for rural banking and credit sys-
tems. All require the members to be natural persons; none
allows assoeiational members. This alone would prevent
credit societies from being the basic units of a system. All
forbid tie acceptance of deposits from outsiders, thus clos-
ing the greatest source of funds for operations. All require
share capital and prohibit the societies from doing any other
business and from using their funds for any other purpose
than that of making loans. This rejection of Eaiffeisen
principles is the most serious and regrettable defect in the
laws. The farmers of the United States are capable and
independent men and they should have the right under the
laws to organize themselves as best suits their own ideas or
circumstances, whether it be in associations with shares or
without shares or vnth collective liability limited or imlim-
ited. Moreover, they should be able to decide for them-
selves whether they wiU have syndicated local associations
or just one Eaiffeisen credit society for each neighborhood.
They have no choice under any of these laws, and thus the
play of private initiative and freedom of action is blocked.

480 EUEAL CEEDITS

The use of the word "union" is wrong. The misuse of this
word evidently is due to an erroneous translation of the
French word syndicat in the Quebec law which the drafters
of the Massachusetts law used as their model. Unless this
word is changed, another word will have to be employed to
designate the second degree of organization in an agricul-
tural cooperative system. If this were done it would pre-
cipitate in confusion the. statutes and literature on the sub-
ject in European minds. It is safe to predict that except
in scattered instances there will be no rural cooperative
credit societies formed under the Massachusetts, Texas, Wis-
consin and E"ew York laws if they are not materially
amended.

The first step to be taken in order to extend cooperation
and to introduce cooperative credit among farmers is of
course the enactment of proper legislation. Already there
are good laws on cooperative associations in many states.
These ought to be codified in every state and the bad laws
repealed. Wherever it could be done without interfering
with present development and existing conditions, the laws
on cooperation in each state should be reduced to one statu-
tory act. There does not have to be one law for credit
societies and separate laws for associations for other coop-
erative purposes. One law could be made to fit them all, and
this would be the best plan because then the regulations
would become standardized as regards organization, adminis-
tration and management. The farmers of the United States
do not need any special privileges or state aid. If methods
were simplified and technicalities eliminated, cooperation, or
organized individualism based on private initiative and mu-
tual self-help, would eventually be applied to all their activ-
ities. They would accomplish this most quickly and suc-
cessfully by starting with the credit society as the local unit
formed and operated on the principles of Kaiffeisen.

INDEX

Acceptances, 279

Administration and Sales Co-
operative Society, Ger-
many, 305

Advance to Settlers' Act of,-
New South "Wales, 194

Advance to Settlers Office,
New Zealand, 195

Agrarian Credit Institute of
Latium, 359, 360

Agrarian Credit Institute of
Liguria, 362

Agricultural Bank Act of
Queensland, 194

Agricultural Bank Act of
Western Australia, 193,
194

Agricultural Bank of Egypt,
187, 189

Agricultural Bank of the
Philippines, 192, 193

Agricultural Cooperative
Press, 298

Agricultural credit, difficul-
ties of, 468, 469
in the United States, 5, 8
See also Land credit and
Cooperative credit.

Agricultural Credit Bank,
Eoumania, 406

Agricultural Credit Board,
Portugal, 421, 425

Agricultural credit institu-
tions. See Eural co-
operative credit socie-
ties.
Agricultural Land Commis-
sion, St. Petersburg,
169
Agricultural mutual credit
banks, Portugal, feder-
ations of, 425
loans of, 423, 424
organization and operation

of, 422, 425
statistics for, 426
Agricultural mutual credit
system, Portugal, 421,
422
central bank of, 425
district banks of, 422, 425
established by law of 1911,

420, 421
local banks of, 422, 425
slow growth of, 425, 426
syndical character of, 419
Agricultural Organization So-
ciety for England and
Wales, 439, 443, 449
Agriculture, cooperative credit
for, 260, 261. See also
Eaifieisen Societies and
£ural cooperative credit
societies.

481

482

INDEX

AgricTilture, in Austria, 364,
365
in Europe in early nine-
teenth century, 20
in Hungary, 370
in Ireland in 1889, 440
in Japan, 433
in Luxemburg, 389, 390
in the United States, 6, 9

needs of, 7
land credit for, in France,
128-135
Albania, no cooperative credit

society in, 413
Algeria, agricultural mutual

credit system in, 437
Alkmaar Central Bank, Hol-
land, 388
Alsace-Lorraine, union of, 300
Amortization, advantages of,
20
debentures necessary for, 22
effect of operation of, 22, 23
French method of, 18, 19,

21, 22
German landschaft's method

of, 21, 85
history of, 19

in Italian savings banks, 143
Italian and Japanese

method of, 219
obligatory in Boden-Eiedit

Institut, 165
possible only for certain

lenders, 22
under Chilean system, 205
under Credit Agricole mu-
tual system, 134
Amortization fund of Silesian

landschaft, 64, 70, 75
Andorra, Republic of, French

cooperative banks avail-
able for, 426
Anhausen, first Eaiffeisen so-
ciety formed at, 259,
285
"Annual societies" in Hun-

gaiy, 371
Annuities, calculation of, 19
Credit Foncier loans pay-
able by, 118
payable on long-term loans
in foreign countries,
211, 212
payable to land-credit insti-
tutions, 219
under Credit Foncier sys-
tem, 122
under Italian system of land

credit, 142, 144
under Peasants' State Land
Bank system, Bussia,
171
under Silesian landschaft
system, 62-64, 66
disposition of, 68, 69
use of, by land-credit insti-
tutions, 221
Argentine National Land

Bank, 202
Argentine EepubUc, Jewish
agricultural colony in,
455
land-credit institutions of,
202, 203
Artel, Eussian, 396
Assignats, 27, 31
Assington, first English rural
cooperative association
at, 254
Aussig, early credit associa-
tion at, 365

IOT)EX

483

Australia, land credit in, 193-
195

long-term loans in, 211
Austria, agricultural popula-
tion of, 364, 365

cooperative federations of,
367, 368

early cooperative move-
ments in, 364

legislation on cooperative
credit in, 370

long-term loans in, 211

project for Central national
bank in, 370

provincial mortgage insti-
tutions of, 161, 162

rural cooperative (Eaif-
feisen) societies in, 366,
367
privileges of, 369, 370

Schulze-Delitzsch banks in,
365, 366

state and provincial aid to
agricultural cooperation
in, 368-370
Austria-Hungary, cooperative
credit in, 364-379

land-credit in, 161-168, 219.
See also Austria and
Himgary.
Austrian savings banks,
method of, of extin-
guishing loans, 18
Avramovitch, 457

first cooperative bank in
Servia founded by, 407

Baden, imion of, 300

banking method of, 306
Balkan States, cooperative
credit ia, 405-414

Baltic provinces, land credit
in, 218
Territorial Credit Estab-
lishment for, 174

Banco Hipotecario del Uru-
guay, 205

Banco Hipotecario Nacional,
Argentine Kepublic, 202

Bank for Cooperative Asso-
ciations, 322

Bank for Laborers' Holdings
and Dwellings, Nor-
way, 184-186

Bank of Algeria, 437

Bank of England, founding of,
24

Bank of France, agricultural
credit and, 333-335,
342, 343

Bank of Naples, 359
management of provincial
agricultural banks by,
361

Bank of Portugal, relation of,
to agricultural mutual
credit system, 421, 424

Bank of Kussia, 400

services of, to agriculture,
400, 401

Bank of Scotland, 270

Bank of Sicily, 361

Bank of Silesian landschaft,
56, 58, 67

Bank of Spain, 418

Bank of Western Australia,
193, 194

Bank fund of Silesian land-
schaft, 70

Banks, agricultural mutual
credit, Portugal, 422-
426

484

INDEX

Banks, in Switzerland, 393
land. See Land banks,
land-credit, Germany, 94,

95, 104-110
land-improvement annuity,

Germany, 95-97
rent-cliarge, in Germany,

97-100
rural, Finland, 173
savings. See Savings banks.
Sdhulze-Delitzsch People's.
See Schulze - Delitzscb
People's Banks.
Barbadoes, credit society in,

438
Baroda, Protectorate of, spe-
cial law for, 430
Baron de Hirsch fund, 451,

452
Bastiat, Claude-Prederic, life

and principles of, 269
Bavaria, union of, 300
Bavarian Hop Growers' So-
ciety, failure of, 304
Bavarian Mortgage and Ex-
change Bank of Mu-
nich, 104, 105, 108
Belgium, Boerenbond or Peas-
ants' League of, 383,
385
central bank of, 386
comptoirs agricoles and
General Pensions and
Savings Bank of, 383,
384
cooperative credit early de-
vised in, 380
cooperative credit societies

in, 382, 383
Credit Union of Brussels
in, 380-382

Belgium, credit unions in, 382
first cooperation law in, 382
legislation on cooperative

credit in, 383
life insurance as security in,

384
rural cooperative credit so-
cieties in, 385, 386
syndicats in, 385
Beluze, 322
Bemat, Stephen, 372
Bemhardi, Dr., 257, 265
Bevan, William, 414
Bey, Omar Lufly, the father
of cooperation in Egypt,
436, 457
Bichelsee, Switzerland, rural
cooperative credit so-
ciety in, 392
Bismarck, 108, 257, 267
Blanc, Louis, 321
Board of Agriculture, Scot-
land, 151-153
Board of Agriculture Eind
Pisheries, Great Brit-
ain, 158-160
Board of Public Works, Ire-
land, 153, 154
Board of supervision of Caisse
Populaire, 448
of people's banks, 277, 278
of Eaiffeisen societies,
289
Boden-Kxedit Institut, Him-
gary, founding of, 164
loans of, 165, 166
organization and adminis-
tration of, 164, 165
statistics of, 166
Boerenbond of Belgium, 384,
386

INDEX

485

Bonnard Excliange Bank,

Marseilles, 322
Bouvet, Paul, 322
Brandenburg, landechaft in,

85
Brazil, Jewish farmers in, 455
British India, central banks
in, 431, 432
cooperative credit laws of

1904 and 1912 in, 430
cooperative credit societies

of, 430-432
early forms of cooperation

in, 428
economic conditions in, 42Y,

428
history of cooperative credit

in, 429
statistics on cooperative

credit in, 432
work of Nicholson and
Wolff for cooperative
credit in, 429, 430
Buerman, organizer with
Bemhardi of first co-
operative bank, 25Y
Building and loan associations
in the United States,
statistics for, 457
See also Savings and loan
associations.
Building loans of Banco
Eipotecario Nacional,
Argentine Republic, 202
of Norwegian Bank for
Laborers' Holdings and
Dwellings, 185
Building operations, super-
vision of, by Sous-
Comptoirs des Entre-
preneurs, 129, 130

Bulgaria, Central Agricul-
tural Bank of, 410, 411
Central Cooperative Bank

of, 412, 413
farmers' banks of, 409, 410
rural credit societies of, 411,
4l2

Bureau for non-members of
the Silesian landsehaft,
56, 57, 58

Bureau of Supervision and
Control of the Ministry
of Agriculture, France,
324, 337

Biiring, plan of, for land
credit, 38-42

Cairo, first cooperative society

in Egypt at, 436
Caisse Populaire, establish-
ment of, 445
influence of, in forming

other banks, 446
organization and operations

of, 447-449
similarity of, to American
mutual savings banks,
446
statistics of, 445, 446
Caja de Credito Hipotecario,

Chile, 203-205
Caja Prestamos para Obras
de Irrigacion y Fomen-
to de la Agricultura,
Mexico, 201, 202
Canada, Caisse Populaire, 445-
449
cooperative banks in, 450
Jewish farmers in, 455
legislation on cooperative
credit in, 449, 450

4:86

INDEX

Canada, movement for cooper-
ative credit in, 450, 451
people's banks in, 446. See

also Caisse Populaire.
trading monopoly in, 251

Carey, Henry Charles, 269
Schulze-Delitzsch's knowl-
edge of, 256

CasasTis, Joaquin D., 196

Cash credit, 279

in Italian people's banks, 352
origin of, 271

Casimir-Perier, 324

Casse Ademprivili of Sar-
dinia, 361, 362

Catholic banks in Italy, 353,
354

Catholic rural credit societies
in Italy, 357, 358

Cattle-purchasing commis-
sions in Switzerland,
394

Cattle Selling Society, Ger-
many, 303

Celleiros communs, Portu-
guese, 420, 421

Central Agricultural Bank of
Bulgaria, 410, 411

Central Agricultural Cooper-
ative Bank at Darm-
stadt, failure of, 305,
306

Central Agricultural Loan
Bank, Germany, 290,
304, 306, 308
branches of, 306, 308
method of, of extending

credit, 308
relations of, with Prussian
Central Cooperative
Bank, 311

Central Agricultural Loan
Bank, statistics of,
309
withdrawal of, from Im-
perial Federation of
Germany, 303

Central Association of Co-
operative Societies of
Japan, 434, 435

Central Bank for Agricultural
Loans, France, 132

Central Bank for People's
Banks and Cooperative
Societies, Eoumania,
405, 406

Central Bank of Agricultural
Credit, Lisbon, 425

Central banks: British India,
431, 432
Germany, 306-309
Holland, 387, 388
Eussia, 402
Servia, 408

Central Cooperative Bank for
England and Wales,
444, 445

Central Cooperative Bank of
Bulgaria, 412, 413

Central Cooperative Credit
Establishment of Fin-
land, 404

Central Federation of Agri-
cultural Syndicates of
France, 324, 337

Central Federation of People's
Credit, France, 323

Central Landschaft of Prus-
sia, 89-91

Central Society of German
Wine Growers, failure
of, 304

INDEX

487

Centre. See Hungarian Cen-
tral Society for Co-
operative Credit.

Chambers of agriculture, Ger-
many, 301

Character Credit, 271, 467,
468

Charity, attitude of Schulze-
Delitzsch banks toward,
274
effect of, on cooperation, 261

Chegaray report on land credit
in France, 112

Chile, land credit in, 203-205
long-term loans in, 211

Chilean State Land Mortgage
Bank, 203-205

Chosen Bank, Japan, 189

Circles of the Silesian land-
schaft, 54-56

Collective purchasing by rural
cooperative credit so-
cieties, 472, 473

Collective saving, distin-
guished from coopera-
tive credit, 241

Colonial Bank for Hokkaido,
Japan, 189

Cornices, 330

Committee of arbitrators of
Italian people's banks,
352
of control, of Italian peo-
ple's banks, 351
of Italian rural credit so-
cieties, 355
of management of Baiffeisen

societies, 289
of supervision, of Hungar-
ian Boden-Kredit Insti-
tut, 164

Committee of supervision, of

Hungarian Centre, 374

of Italian savings banks,

141, 142

on credit of the Caisse

Populaire, 448
on "honor," of Italian peo-
ple's banks, 352
on risks, of Italian people's
banks, 352
Commutation and redemption
of lands in Germany,
98
Company of the West, John

LaVs, 26, 250
Comptoir National d'Es-

compte, 128
Comptoirs agricoles, Belgium,

383, 384
Compulsory audit, feature of
German cooperative so-
cieties, 302, 303
Congested Districts Board of
Ireland, 154
assistance to, from Estates
Commissioners, 157
Connecticut, early land credit

in, 29
Consumptive credit, 3
"Contractualists," 163
"Conversion," epoch of, in
history of German
landschafts, 82, 83
Cooperation, advent of mod-
em type of, 254, 255
definition of, 247
effect of state aid or charity

on, 261
in the United States, 457-

460
origin of, 253

488

INDEX

Cooperation, Schulze-Delitzsch
theory of, 256-258
Socialism and, 253, 254
work of Eaiffeisen on, 258-
260
Cooperation in Agriculture,

4M
Cooperative associations, ad-
ministration of, 247,
248
advantages of, 250
agricultural, advantages of,

261, 262
best type of, 262
systems of, 260, 261
See also Rural coopera-
tive credit associations,
classes adapted to, 249, 250
distinguished from partner-
ships and corporations,
248, 249
early English, 254, 255
early European, 255
early type of, 250, 251
essential feature of, 249, 349
members' liability in, 248
members' subscriptions in,

248
object of, 249
origin of modem movement

for, 255, 256
three types of, 260
See also Cooperative credit
societies ; for coopera-
tive associations in any
of the various countries
see name of country.
Cooperative banking system
for farmers, 9. See also
Cooperative Credit.
Cooperative banks in France, 1

advances to, by Bank of
France, 335
Cooperative banks in France,
early, 322

in Germany, 306-312

in Italy, 347, 348

in Boumania, 405, 406

in Servia, 407, 408

See also Cooperative credit
societies.
Cooperative cattle buying in

Switzerland, 393, 394
Cooperative cheese factories in
the United States, 460
Cooperative creameries in the

United States, 460
Cooperative credit, 4

first appearance of, 254

in Algeria, 437

in Austria-Himgary, 364-
379

in Balkan States, 405-414

in Barbadoes, 438

in Belgium, 380-386

ia British India, 427-432

in Bulgaria, 409-413

in Canada, 445-451

in Cyprus, 413, 414

in Denmark, 389, 390

in Egypt, 435-437

in England and Wales, 439,
443-445

in European Turkey, 413

in Finland, 403, 404

in France, 321-345

in French West Africa,
438

in German Southwest Afri-
ca, 438

in Germany, present sys-
tems of, 296-320

INDEX

489

Cooperative credit in Ger-
many, EaifEeisen system
of, 281-295
Sclmlze-Delitzscli People's

Banks, 263-280
system of, smmnarized,
312, 313
in Guinea, 438
in Holland, 386-389
in Ireland, 439-443
in Italy, 346-363
in Jamaica, 438
in Japan, 432-435
in Java, 438
in Luxemburg, 388, 389
in New England, 27
in Norway, 391
in Palestine, 414
in Portugal, 419-426
in Eepublic of Andorra, 426
in Eoumania, 405, 406
in Eussia, 395-404
in Scotland, 445
in Servia, 407-409
in Spain, 415-419
in Sweden, 391
in Switzerland, 392-394
in Tunis, 437, 438
in United States, 451-455
origin of, 257-260, 285
principles of, and their ap-
plication, 456-480
spread of, in Europe and
Asia, 456, 457
Cooperative credit societies,
administration of, 464,
465
advantages of, 469, 470
associations of persons, not
aggregations of capital,
462

Cooperative credit societies,
cheap credit not grant-
ed by, 466, 468
compulsory audit of, 465
countries where most highly

developed, 457
functions of, 466
in Algeria, 437
in Belgium, 382, 383
in British India, organiza-
tion and operation of,
430, 431
privileges of, 431
statistics for, 432
supervision and inspection
of, 431
in Egypt, 436, 437
in England and Wales, 444
in Einland, 404
in France, distinguished
from syndicats, 330
local. See Eural cooper-
ative banks,
relation of, to Ereneh
syndicats, 322, 333
in Germany, land - credit
business of, 104
local, 313

organization and opera-
tion of, 313-318
source of funds of, 318
statistics of, 316, 319
in Hungary, 372, 373
affiliated with the Centre,

375-378
defects of, 378, 379
not affiliated with the
Centre, 379
in Italy, legislation on, 349,

350
in Japan, 434, 435

490

INDEX

Cooperative credit societies,
in Quebec, 450
provisions for, 449, 450
in Eoumania, 405, 406
federations of, 406
state aid to, 406
in Eussia, 398, 399
federations of, 399, 400
history of, 396, 397
statistics of, 399
types of, 398, 399
in Tunis, 437
interest rates of, normal,

467, 468
limitation of dividends in,

467
multiple voting in, 462
need of deposits in, 466
organizers of, 456, 457
real-estate mortgages taken

by, 467, 468
security always required by,

467, 468
type of legislation required
for, 465, 466
Cooperative elevators and
granaries in tbe United
States, 460
Cooperative land-purchasing

societies, Pinland, 173
Cooperative savings and loan
societies, Russian, 398,
399
statistics of, 399
Cooperative Tobacco Sales

Society, 304
Corporations, disadvantages
of, 250
distinguished for coopera-
tive associations, 248,
249

Corporations, effect of rise of,
252, 253
French law of 1867 on, 328
history of, 251-253
Costa Eica, state land-mort-
gage bank of, 205
Coimselors of the Silesian

landschaft, 47, 48
County credit and savings

banks, Eussia, 401
County Credit Association of
Pesth Philis-Solt-Kis-
kun, 372
Courland, Eussia, territorial
credit establishment for,
174
Creamery associations in Ire-
land, 441
Credit, agricultural, in the
United States, 5-8
See also Land credit,
consumptive, 3
cooperative, 4. See also

Cooperative credit,
definition of, 3
forms of, 3
inadequacy of, in United

States, 5
individual, 4

kinds of, needed by agricul-
ture, 7
land, 3. See also Land credit,
long-term, 3, 4, 7, 8
productive, 3
real-estate, use of, 7
security for, 3
short-term, 8

securities for, 3, 4
sources of, in United States,

7
wide extent of, 4

INDEX

491

Credit agricole en France et

a I'Etranger, 322
Credit Agricole Mutuel, 132-
134, 324

Bank of France and, 343

connection of, with the Cen-
tral Federation of Agri-
cultural Syndicats, 324

debt of, to the state, 343

life insurance accepted as
security by, 207

local banks of, 324, 338-341

organization of, 337

possible future sources of
funds of, 343

provisions of law, creating,
335, 336

regional banks of. See
Eural regional banks.

statistics for, 1912, 323, 324,
340

subject to Bureau of Super-
vision and Control of
Ministry of Agricul-
ture, 324

system of, outlined, 337
Credit Foncier, agriculture
and, 131, 132

area of operations of, 117

capital stock of, 116, 117

debentures of, 124-127
lawful investments for
rural banks, 339

disposal of earnings of, 117

establishment of, 114, 324

financially embarrassed by
Societe du Credit Agri-
cole, 325

limit of debenture issue of,
221

loans of, 118-124

Credit Foncier, objects of,
117, 131
obligatory reserve of, 117
organization of, 115, 116
privileges of, 114, 127, 224
prizes given by, 218, 222
procedure of, in cases of de-
fault, 123
relations of, with Societe
du Credit Agricole, 325,
326
reports of, 127
sources of funds of, 118
Sous-Comptoir des Entre-
preneurs de Batiment
controlled by, 128
special reserves of, 117
statistics of, 130, 131
Credit Foncier Egyptien, 187,

188
Credit Institution for All

'Germany, 105
Credit Union of Brussels, 380-

382
Credit Unions, distinguished
from comptoirs agri-
coles, 383
in Belgium, 382
in Massachusetts, 479
in New York, 479
in Texas, 479
See also Cooperative credit
societies.
Croatia-Slavonia, family co-
operiative societies in,
371
Croatian Agrarian Bank, 379
Cuba, Territorial Bank of, 206
"Curialists," 163
Cyprus, cooperative credit in,
413, 414

493

INDEX

d'Andrimont, Leon, 382, 383,

456
Daranyi, Ignatius, 372
Dartmouth College case, 252
Debenture bond, litera A, 60

litera B, 66

litera C, 61

litera D, 70
Debentures, 24-33

as securities, 223

Biiring's plan for issuing,
38-41

characteristics of, 32, 33

definition of, 17

forms of, 222

long-term loans and, 222,
223

necessary for amortization,
22

new series of, issued by old
German landschafts, 84

of agricultural credit asso-
ciations, Italy, 147

of central landschaft of
Prussia, 90

of Credit Foncier, 124-127,
131

of Credit Eoneier Egyptien,
188

of Danish land-credit asso-
ciations, 179

of German public land-
credit institutions, 93

of Hungarian Boden-Kredit
Institut, 166

of Hungarian Central So-
ciety for Cooperative
Credit, 375

of Italian savings banks,
143, 144

of kwango ginko, 190, 191

Debentures of land-credit in-
stitutions, 219-224

of Mexican mortgage banks,
198, 199

of new type of German land-
schafts, 88

of Norwegian Bank for
Laborers' Holdings and
Dwellings, 185

of old type of landschafts
other than Silesian, 80

of Peasants' State Land
Bank, Eussia, 171

of Provincial Credit Asso-
ciation of Posen, 83,
84

of provincial mortgage asso-
ciations, Austria, 161,
162

of Prussian Central Land
Credit Company, 109,
110

of rent-charge banks, 99

of Silesian landschaft, 60-
66, 71-76

of special cooperative bank
of Bulgaria, 413

of Swiss mortgage banks,
177

origin of, 26

paper money, first form of,
24

privileges attached to, 223

redemption of, by land-
credit institutions, 221

retirement of, by land-credit
companies, 221, 222

security of, 222

use of, in United States, 8
de Besse, Ludovic, cooperative
banks of, 322

INDEX

493

Decentralization, as distin-
guished from syndical-
ism, 461
de Lavergne, Leonce, 324
del Credere Commissions, in
Belgic Comptoirs Agri-
coles, 384
Delitzsch association for co-
operative credit, 266
Denmark, collective buying
and selling in, 389
home colonization policy of,

180
land-credit associations of,

1Y9
land-credit system of, 218
long-term loans in, 211
mortgage associations of,

1Y9, 180
Mortgage Bank of, 180
rural cooperative credit so-
cieties in, 389, 390, 461
serial issue of debentures in,
220, 221
Department of Agriculture
and Technical Instruc-
tion, Ireland, 155
Desjardins, Alphonse, activi-
ties of, for cooperative
credit in Canada, 446,
450, 451, 457. See also
Caisse Populaire.
promoter of cooperative
credit in United States,
457
Dieterici, on results of Seven

Tears' War, 36, 37
Discount and Mortgage Bank

of Bavaria, 206
Discount committee of Italian
people's banks, 351, 352

Distributive societies of Wil-
liam Haas, 296

District boards of the SOesian
landschaft, 49-51

District managers of the SUe-
sian landschaft, 49

Dividends, in BaifFeisen socie-
ties, 287
people's banks and, 276, 277

Doneraile credit society, 441,
442

Donna Eleonora, Queen, 420

Dorovatovo, cooperative loan
and savings society at,
396

Dresdener Bank, Germany,
280

Dual monarchy. Bee Austria-
Hungary.

Duport, syndical banks
founded by, 333

Durand, Louis, 345, 366, 457
first BaifFeisen society in
France formed by, 322,
323

Dussert, 323

East Indies, monopolies of

companies over, 250
East Prussia, landschaft of,

77, 78, 81, 85, 86
public insurance company

founded by, 207
Economides, organizer of

BaifEeisen society ia

Cyprus, 414
Egypt, cooperative credit in,

435-437
land-credit institutions of^

187-189
EUenbuxg association for ea~

494

INDEX

operative credit, 255,
265

Eindhoven Central Bank,
HoUand, 387

Emphyteusis, 146

Endre, 371

England. See Great Britain.

English trade unions, 254

Equitable Pioneers of Eoche-
dale, 254, 255

Ertl, Dr., 368

Estates Commissioners of Ire-
land, 155, 157

Esthonia, territorial credit
establishment for, 174,
218

Executive committee of peo-
ple's banks, 277

Executive council of the Sile-
sian landschaft, 47, 48
of the Swedish General
Mortgage Bank, 182

Expropriation, 217

Earm-mortgage bureaus for

non-members of Sile-

sian landschaft, 56,

57
Farmers' Central Trading

Board, 439
Earmers' mutual insurance

companies. United

States, 459
Earmers, cooperation best

adapted for, 249
debt of, in United States,

5-8
long-term loans necessary

for, 211
Eederal Eeserve Act of 1913,

8, 9

Federation of Dutch Peasants,
387

Federation of Farmers' and
Workmen's Banks with
Unlimited Liability,
France, 323, 345

Federation of Industrial and
Economical Coopera-
tive Societies, Germany,
See General Federa-
tion.

Federation of Jewish Farm-
ers of America, 453

Federation of Sehulze - De-
litzsch Societies of
Austria, 366

Feudalism, distribution of
land under, 12
end of, 11, 12, 14

Finland, cooperative credit in,
403, 404
land credit in, 173, 174, 218
long-term loans in, 211
Mortgage Society of, 174

First General Hungarian
Life Insurance Society,
207

Flammersfeld, Germany, Raif-
feisen credit society at,
259, 285

Formosa, 189

Founders, assembly of Hun-
garian Boden - Eredit
Institut, 164

Fourier, 321

France, agricultural condi-
tions in 1852.
cooperative credit system in,

outline of, 237
Credit Agricole Mutuel of,
323, 324, 337-344

INDEX

495

France, Credit Foncier of,

114-127

See also Credit Foncier.
credit unions in, 382
early efEorts at cooperation

in, 255
experiments in land credit

in, 27
first rural cooperative bank

in, 332
history of cooperative credit

in, 321-336
history of land-credit move-
ment in, 111-114
land credit in, 111-135. See

also Credit Foncier and

Sous-Comptoir des En-
trepreneurs de Bati-

ment.
land credit for agriculture

in, 128-135, 218
Credit Agricole Mutuel,

132-134
legislation on agricultural

credit in, 325-332, 335,

336
legislation on corporations

in, 328
l^islation on land credit in,

111, 113, 114, 118, 132,

133
life insurance as security for

loans in, 207, 208
limit of debenture issues in,

221
long-term loans in, 211
mortgage debt in, 4
precursors of cooperative

credit in, 321
savings banks in, and their

help to cooperation, 333

France, special privileges to

land-credit institutions

in. 111, 224

state aid to cooperative

credit in, 343, 344, 469

failure of, 344, 345

Frankfort-on-the-Main, Bank
of, 305

Fraternal Bank for Small
Commerce, Cognac, 322

Frederick the Great, 36, 37, 38
adoption of Biiring's idea

by, 42, 43
amortization under, 19

French Canada, movement for
cooperative credit in,
451

French West Africa, mutual
aid societies in, 438

French Eevolution, abolition
of corporations and as-
sociations during, 328
land credit during, 26

Funds, two kinds of, needed
by agriculture, 7

Galician Boden-Kredit Insti-

tut, 162
General assembly, of Central
Cooperative Bank of
Bulgaria, 412, 413
of Credit Foncier, 115, 116
of National Land Credit
Institute for Small
Landowners of Hun-
gary, 166, 167
of people's banks, 277
of Eaiffeisen societies, 289
of Silesian landschaft, 51-53
General Bank of Law and
Company, 25

496

INDEX

General Board for Small
Credit, Bank of Eussia,
400

General commissions, Ger-
many, 97

General (Eaiffeisen) Federa-
tion, 290, 291, 299
cooperative banks of, 306
principle of self-Help in, 279
secession of, from Imperial
Federation, 297, 303

General Federation of People's
Banks, Germany, 279

General funds of the Silesian
landschaft, 69, 75

General Land Drainage and
Improvement Company
for England and Wales,
159

General Pension and Savings
Bank, Belgium, 383, 384

General Union, Servia, 408

German Federation of Aus-
trian Agricultural Co-
operative Societies, 367,
368

German landsehafts. See
Landschafts.

German savings banks, method
of, of extruguishing
loans, 18

German Southwest Africa,
credit society in, 438

German Wine Grower's So-
ciety of Palestine, 303

Germany, amortization in, 19,
20
cooperative banks of, 306-

312
Council of Agriculture of,
301

Germany, fiduciary agent for
land mortgage banks
in, 213
first cooperative associations

in, 255
General Federation of Rural
Cooperative Societies
of, 299. See also Gen-
eral (Eaifieisen) Fed-
eration,
land-credit institutions in,
34, 217
private, 102-110

insurance institutions,

103, 104
land-credit banks, 104-

110
savings banks, 102, 103
public, 92-100
general commissions, 97
land-credit banks, 94, 95
land-improvement an-
nuity banks, 95-97
rent-charge banks, 97-
100
settlement commission,
97
See also Landschafts.
land-credit law of 1899 in,

105, 106
life insurance as security

for loans in, 207
limit of debenture issues in,

221
local cooperative credit so-
cieties in, 313-320
long-term loans in, 211
modem cooperative move-
ment in, 255-260
present systems of coopera-
tive credit in, 296-320

INDEX

497

Germany, EaifFeisen system
in, 281-295. See also
EaifFeisen system.

rural cooperative system of,
281-295, 469-472
compulsory audit in, 302
failures in, 304, 305
financing of, 302
summarized, 312, 313

Schulze-Delitzscli People's
Banks in, 263-280. See
also Schulze - Delitzsch
People's Banks.

second mortgages in, 209

state invalidity and old-age
insurance institutions
in, 99, 100
Gladstone, 156

Gomez, Valentin, organizer of
first cooperative credit
society, 417
Great Britain, agricultural
cooperative movement
in, 439

Agricultural Organization
Society of England and
Wales in, 439, 443, 444

cooperative credit in, 444,
445

Farmers' Central Trading
Board of England in,
439

first cooperative associa-
tions in, 254

land-credit experiments in,
24-26

land legislation in, 156-
160

loans granted by Develop-
ment Commission in,
444

Great Britain, nationalization
of land in, 215
Small Holdings and Allot-
ments Act of 1908 in,
148-151
trade unions of, 254
why no private land-credit

companies in, 210
See also Ireland and Scot-
land.
Greece, no cooperative credit

society in, 413
Guaranty fund, of Schulze-
Delitzsch People's
Banks, 276
of Silesian landschaft, 70
Guinea, credit society in, 438

Haas, WiUiam, compulsory
audit favored by, 303
distributive societies of, 296
Imperial Federation of Ag-
ricultural Cooperative
Societies foimded by,
297, 298
Haeck, Frangois, 380, 382, 383
Heddesdorf, 259, 282, 283, 285
Hesse, activities of WiUiam
Haas in, 296, 297
crisis in cooperative move-
ment in, 306
Holland, central banks of, 387,
388
early efforts at cooperation

in, 255
Peasants' Cooperative Mort-
gage Bank of, 387
rural credit societies in, 387
village associations in, 386
Home colonization in Den-
mark, 180

498

INDEX

Home colonization, in Fin-
land, 173
in New Zealand, 195
in Sweden, 183
Hotoku-sha, original ts^pe of
cooperative credit so-
ciety in Japan, 433
Huber, Victor A., activities of,
for cooperation, 255
influence of, on Sclmlze-
Delitzsch, 256
Hudson's Bay Company, 251
Hungarian Central Society
for Cooperative Credit,
167, 207
estabKshment of, 373, 374
organization and operation

of, 374, 375
powers and duties of, 375
privileges of, 375
shortcomings of, 378, 379
societies affiliated with, 375-

377
statistics of, 378
Hungarian Land Mortgage

Institute, 374
Hungarian National Land
Credit Institute for
Small Landowners, 166
Hungary, agriculture in, 370
"annual societies" in, 371
Boden-Kredit Institut of,

164-166
Central Society for Cooper-
ative Credit in, 373-375,
377, 378
cooperative credit societies

in, 375
cooperative organizations in,
independent of "Cen-
tre," 379

Hungary, Count Karolyi's co-
operative movement in,
372, 373

early attempts at coopera-
tion in, 371

early history of land credit
in, 163

Land Credit Institute of,
168

legislation on cooperative
credit in, 373, 374, 379

life insurance as security for
loans in, 207, 208

long-term loans in, 211

National Federation of
Hungarian Land Credit
Institutions of, 167, 168,
377

National Land Credit Insti-
tute for Small Land-
owners of, 166, 167, 377

state aid to cooperative
credit in, 373-375, 469

successes and failures of co-
operative system in,
378, 379
Hussein, Prince, activities of,
for cooperation i n
Egypt, 436

Imperial Cooperative Bank,
Germany, 303, 306

branches of, 306, 307

founding of, 311

statistics of, 309
Imperial Federation of Agri-
cultural Cooperative
Societies, Germany, cen-
tral institutions of, 303

cooperative banks of, 306

establishment of, 297

INDEX

499

Imperial Federation of Agri-
cultvtral Cooperative So-
cieties, Germany, fail-
ures in, 304, 305
membership of, 1913, 303
organization and purposes

of, 298
relations of, with Prussian
Central Cooperative
Bank, 311
scope of, 298, 299

Improvement Company for
England and Wales, 159

India, British. See British
India.

Individual credit, 4

Instalments, loans extin-
guished by, 17

Institution for the Encour-
agement of Irrigation
Works and Develop-
ment of Agriculture,
Mexico, 201, 202

Insurance, old-age, in Ger-
many, 99, 100

Insurance companies in the
United States, 459, 460
public, 207

Insurance institutions (pri-
vate) in Germany, 103,
104

Internal Emigration Service,
Sussia, 169

Xatemational Agricultural
Congress, Budapest,
1885

Ireland, agricultural popula-
tion of, 155
agriculture in, 440
Board of Public Works of,
153, 154

Ireland, Congested Districts
Board of, 154

cooperative associations in,
461

Department of Agriculture
and Technical Instruc-
tion of, 154, 155

economic conditions in, in
1889, 440

Estates Commissioners of,
155, 157

land legislation in, 156-158

long-term loans in, 211

nationalization of land in,
215

rural cooperative credit as-
sociations in, 441, 442
imsatisfactoiy progress
of, 442, 443

why no private land-credit
companies in, 210

work of Sir Horace Plun-
kett for cooperation in,
440, 447
Irish Agricultural Organiza-
tion Society, 439, 442

formation of, 440

work of, 441
Irish Church Act, 1869, 156
Irish Homestead, 444
Irish Land Act, 1903, 157
Istituto Italiano di Credito
Fondiario, 139

capital stock of, 144, 145

foxmdation of, 144

method of, of granting
loans, 145
Italy, agricultural credit in-
stitutions in, 146, 147

central cooperative institu-
tions in, 359-363

soo

INDEX

Italy, cooperative associations

iQ, 349, 350
early work in cooperation

in, 255
early work in cooperation

credit in, 260
history of land credit in,

136-141
land-credit institutions in,

219, 220
legislation on cooperative

credit in, 349, 350, 353,

359
legislation on land credit in,

136-140, 146
long-term loans in, 211
people's banks of, 348-354
present system of land credit

in, 136, 13Y, 140-147
project for central coopera-
tive bank in, 363
rural credit societies in, 354-

359
state aid to cooperative

credit in, 359-363
work of Luzzatti in, 347-349
work of Wollemborg in, 354

Jamaica, credit society in,

438
Japan, agricultural conditions
in, 433
Central Association of Co-
operative Societies of,
434, 435
cooperative societies in,
classes of, 434
federations of, 434, 435
regulations for, 434
early mutual aid societies
in, 433

Japan, land-credit institutions
of, provision for sink-
ing fund of, 219,
220
land-credit system of, 189-

192
legislation on cooperation

in, 433, 435
long-term loans in, 211
modem cooperative societies
in, 433-435
Java, Baifieisen Society

founded in, 1904, 438
Jewish Agricultural and In-
dustrial Aid Society,
United States, 218
efforts of, to establish co-
operative credit for
Jewish farmers in
United States, 451, 452
Jewish farm colonies in Pales-
tine, 414
Jews, in South America, 455
in the TTnited States, colon-
ies of, 454, 455
rural cooperative credit
among, 451-455
in Western Canada, 455
Joint Agricultural Board of
Trade for England,
Wales, Ireland and
Scotland, 439
Joint Board for Agricultural
Organization, Great
Britain, 439
Josseau, Jean-Baptiste, 324,
325
report of, on land credit,

112
syndical banks foimded by,
333

INDEX

601

Kansas, application of Silesian
type of landsctaft to,
226-229

Kardjew, 411

Karolyi, Count Alexander,
system of rural credit
in Hungary organized
by, 371, 372, 457

Klagenfurt, early credit asso-
ciation at, 365

Korea, 189

Kiir and Nemnark, land-
schaft of, 77, 78, 86

Kurland. See Courland.

Kuttuchuttu of British India,
428

Kwango Ginko. See Nippon
Kwango Ginko.

Laborers, loans to in Trance,

134, 135
La Cooperazione Rurale, 357
Land as basis for bank loans,
32
as basis for cnrrency, 30, 31
as basis for money, 31
Land Bank of New York,
compared with. Central
Landscbaft of Prussia,
239
Land Bank or Manufactory
Scheme, Massachusetts
Bay Province, 29, 30
provisions for organization

of, 232, 235-237
purpose of, 237, 238
Land Bank of Paris, 113, 114
Land Bank of Servia, 175
Land-banks, Biiring's schema
for establishing, 38-42
business of, in 1912, 146

Land-banks, in American col-
onies, 27-30
in England, first two, 24, 25
in Prance, established under
the law of 1852, 113
failure of, 138, 139
in Italy, at present time,
140, 141
interest rates of, 145
Istituto Italiano di Credi-

to Pondiario, 143-145
management of, 141-144
privileges of, 144
rural business of, 145
under law of 1866, 137
under law of 1885, 138
Land commissions, Eussian,

169, 172, 173
Land Court of Scotland, 151,

152
Land credit, 3

best method of, for the

United States, 242-244.

during Prench Revolution,

26, 27
experiments in, in England

and Scotland, 24-26
first principles of, 33
in Argentine EepubHc, 202,

203
in Australia, 193-195
in Austria - Himgary, 161-

168, 219
in Chile, 203, 205
in colonial America, 27-30
in Costa Bica, 205
in Cuba, 206
in Europe, lessons of, 16
object of, 21
state aid to, 16
in Finland, 173, 174

503

INDEX

Land credit, in France, 111-
135, 218

in Germany, 34-110, 217

in Great Britain and Ire-
land, 148-160

in Italy, 136-147, 219

in Japan, 189-192

in Mexico, 196-202

in New York, 232-239

in New Zealand, 195, 196

in Norway, 184-186

in PLilippiaes, 192, 193

in Prussia, 26

in Soumania, 175

in Eussia, 167-174, 218

in Servia, 175

in Sweden, 181-184, 217,
218

in Uruguay, 205.

See also Kansas, New
York, Ohio, "Wisconsin.

organization of, 16

principles of, and their ap-
plication, 209-244

SUesian scheme for, in Kan-
sas, 226-229

two kinds of bodies for, 15
Land Credit Bank of Geneva,

178
Land-credit banks, German,

94, 95, 105-110
Land Credit Company of Sar-
dinia, 141
Land Credit Institute at

Nagy-Szeben, 168
Land-credit institutions, de-
bentures of, 220-224

distinguishing feature of,
210

Barly object of, in Europe,
20

Land-credit institutions, gen-
eral plan of administra-
tion of, 213, 214
in Denmark, 179-181, 218
in Egypt, 187-189
in French West Africa, 438
ia Switzerland, 176-179, 218
in United States, history of,

preface
organization of, 225, 226
private, scope of business

of, 214, 215
privileged debentures of,

223
public, classes benefited by,

215
rules and regulations gov-
erning, 216, 217
scope of business of, 215
reasons for existence of, 210
sinking fund of, 219
special privileges and state

aid to, 11-16
snmniary process of, for col-
lecting claims, 216, 217
for examining titles, 216
for protecting rights, 216
types of, 212, 213
See also Landschafts and
Land credit.
Land-improvement acts in
Great Britain and Ire-
land, 158-160
Land-improvement annuity
banks, Germany, 95-97
Land Law (Ireland) Act,

1881, 156
Land Loan and Enfranchise-
ment Company for Eng-
land, Wales, Scotland,
and Ireland, 159

INDEX

503

Land Mortgage Associations

Act, Wisconsin, 229-232

Land Mortgage Bank of

Beme, 218
Land Mortgage Bank of Nor-
way, 184
Landowners' mortgage associa-
tions, Switzerland, 181,
183
Land-pnrchase legislation, in
Ireland, 156-158
in Egypt, 187
value of, determination of,
by Silesian landschaft,
59
relation of, to loans, 21
Landschafts, adaptability of,
to United States, 226-
229
Central, need of, in Ger-
many, 88, 89
Prussian, 89-91
Danish, 179, 180
definition of, 35
desirability of, in the
United States, 242-244
extinguishing of loans in,

18, 21
German, amortization in,
83, 85
era of conversion in, 82,

83
first organized, 43
number and location of,

34, 35
old and new, 35
old compulsory, 36
origin of, 34-44
original type of land-
credit institution, 34,
213

Landschafts, German, short-
comings of, 92, 93
meaning of the word, 44
object of early, 43
other than Silesian, condi-
tion of, during Na-
poleonic wars, 81, 82

debentures of, 88

new type of, variations
among, 87

old type of, credit and de-
bentures of, 79, 80
defects of, 80
management of, 78, 79
reforms in, 82-87
variations in, 78

organization of, 77

state aid to, 77
Prussian, 225
Silesian, 226-228

accounts of, 70, 71

advantages of, to mem-
bers, 63

amortization funds of, 64,
70, 75

bank of, 56, 58, 67

bank fund of, 70

bureaus of, for loans to
non-members, 56, 57,
58

circles of, 54-56

condition of, in 1912, 74-
76

debentures issued by, 60-
62, 71-76

district boards of, 48-51

executive council of, 47,
48

general assembly of, 51-53

general funds of, 69, 75

guaranty fund of, 70

1504

INDEX

Xandschafts, Silesian, liabili-
ties of members of, in
case of default, 64, 65
loans to non-members of,

66, 67
obligations of, 58
obligations of borrower

to, 62, 63
■organization of, 45-47
permanent committee of,

53, 54
power of state over funds

of, 71
procedure in obtaining a

loan from, 58-62
reports of, 71
rights of members of, 63,

64
standing committees of,
51
state aid to, 224
Xands Improvement Com-
pany for England,
Wales and Scotland,
159
XassaUe, Ferdinand, 257, 267,

268
Xaw, John, 25, 26

Company of the West of,

250
influence of, on Biiring, 38
Xeo XTTT, Pope, 357
Xeo Xm (bank), 418
Xevis, first cooperative bank
in America at, 445. See
also Caisse Popxdaire.
Xiechtenstein, principality of,
no figures on coopera-
tive credit for, 426
Xife insurance as security for
loans, 206-208, 384, 385

Xiguria, Italy, Agrarian credit

institute of, 362
Xitera A debentures, 69
Xitera B debentures, 73, 74
Xitera C debentures, 69, 70 ^
Xitera D debentures, special

funds for, 70
Xivonia, Eussia, territorial
credit establishment for,
174, 218
Xocal cooperative credit so-
cieties. See Eural co-
operative credit socie-
ties.
Xong-term credit. See Xong-

term loans.
Xong-term loans, 3, 4

advantages of, for farmers,

244
definition of, 17
essential to farmers, 211
favored by Eaiffeisen, 287
in Germany, 101
in United States, 7, 8
land-credit institutions and,

210, 212
length of, in various coun-
tries, 211
not possible to be made by

individuals, 212
of Credit Foncier, 118
of Credit Union of Brus-
sels, 381
of French regional banks,

343
of French rural cooperative

banks, 340
of German central cooper-
ative baiiks, 308
of Hungarian credit socie-
ties, 377

INDEX

505

Long-term loans, of Italian
rural credit societies,
358
tlirougli Credit Agricole
Mutuel, France, 132-
134
■unrecaUable debentures nec-
essary for, 222, 223
Longuinine, S. F., 396, 456
Loreggia credit society, found-
ing of, 354
influence of, 356
organization and operation
of, 354-356
Lottery, in France, 125, 126
Louisiana, acquisition of, by
John LaVs Company
of the West, 251
Ludwigshafen, grain seUing

societies of, 304
Limeburg, organization of

landschaft in, 77, 78
Luxemburg, agriculture in,
389, 390
no cooperative credit in,

389
state banks in, 389
Luzzatti, Luigi, influence of,
on WoUemborg, 354
originator of new type of
credit association, 260,
456
public career of, 346

Maasbracht, first credit so-
ciety in Holland
formed at, 387

Mahillon, 385

Mailath, George, 163

Malarc, A., 270

Malthus, Thomas Eobert, 269

"Mandats," 27

Marches of TJmbria, credit in-
stitute of, 362
Maria Theresa, 163
Massachusetts, credit unions

in, 479
Massachusetts Bay, province:

of, land credit in, 28,.

29, 30
Mechlenburg, landschaft of, 82^
Meline, Jules, amendment to

law of 1884 proposed by,,

332
first activities of, for co-
operative credit, 322
law of 1899 drafted by,.

335
Meline law, or law of 1899,.

335, 336
MeUaerts, Father, Boerenbond

or Peasants' League of

Belgium organized by,.

384, 386
EaifEeisen bank founded by,.

384
Merry del Val, Cardinal, 357
Mexico, land mortgage banks.

and promotion banks in,.

196-202
Midhat Pasha, 409
Milcent, cooperative bank

founded by, 322
Misericordias, Portuguese^

419, 420
Mixed land-credit banks, 107
Monaco, principality of, no

cooperative credit in„

426
Monte dei Paschi, 140, 141
Montenegro, Eaiffeisen society

in, 413

506

INDEX

Monti Frumentarii, 146

Mortgage associations, Dan-
ish, 179, 180

Mortgage Bank of Berne,
177

Mortgage Bank of Fribourg,
178, 179

Mortgage Bank of Spain, 416,
418

Mortgage Bank of St. Gall,
178

Mortgage Bank of the King-
dom of Denmark, 180

Mortgage Bank of Vaud, 177,
178

Mortgage banks of Mexico,
197-199
of Switzerland, 176-178

Mortgage-bond, definition of,
17

Mortgage Society of Finland,
174

Mortgages . in force under
Silesian landschaft in
1912, 75

Moscow Agricultural Associa-
tion, 396, 397

Moscow People's Bank, 402,
403

Mutual Commercial Exchange
Bank, Montreuil and
Vincennes, 322

Mutual insurance in United
States, 459, 460

Mutual savings banks in the
TJnited States, admin-
istration of, 458
contrasted with European

People's banks, 458
statistics of, 457

Mutual telephone companies.

rapid growth of, among
farmers, 460

Napoleon m, 114, 322, 324

Napoleonic wars, effect of, on
German landschafts, 81,
82

National Agricultural Credit
Institute, Spain, pro-
ject for, 419

National Bank of Egypt, 188

National Federation of Cath-
olic Eural Credit Socie-
ties, 357

National Federation of Hun-
garian Land Credit In-
stitutions, 167, 168, 377

National Federation of Eural
Credit Societies, Italy,
357

National Insurance Society,
France, 207

National Land Credit Insti-
tute for Small Land-
owners of Himgary,
166, 167, 377

National Loan Bank, Sweden,
182

National Small Holdings Land
Mortgage Institute,
Hungary, 374

Neumark. See Kiir and Neu-
mark.

New England, early land
credit in, 27, 28

New England Mutual Life In-
surance Co., cooperative
character of, 459

New London Society TJnited
for Trade and Com-
merce, 29

INDEX

507

New South Wales, 194

New York, savings and loan
associations of, 232-239

New York Land Bank, 241
special privileges of, 236 .

New York law on credit
unions, defects of, 479

New York Life Insurance Co.,
cooperative character
of, 459

New York Mutual Life Insur-
ance Co., cooperative
character of, 459

New Zealand, land credit in,
195, 196
long-term loans in, 211

Nicholson, Sir Frederick A.,
work of, for coopera-
tive credit in India,
429, 430

Nicosia, Cyprus, Savings
Bank of, 413, 414

Nidhis, of British India, 428

Nieder-Modau credit society,
failure of, 304, 305

Nippon kwango ginko, 189,
190, 191

Noko ginko, Japan, 189-192

Norrland fund, Sweden, 184

Norway, collective buying in,
391
credit institutions in, 391
no cooperative credit socie-
ties in, 391
savings banks the chief
source of agricultural
credit in, 391
state aid in, 184-186

Norwegian Bank for Labor-
ers' Holdings and
Dwellings, 391

Ohio, savings and loan asso-
ciations of, 240

Old-age insurance in Ger-
many, 99, 100

Ontario, cooperative banks in,
446

Oriental Colonization Com-
pany, 189

Owen, Robert, activities for
cooperation, 254

Oxford Provident Building
and Loan Association,
254

Palestine, cooperation prac-
ticed by Jewish colon-
ists in, 414

Paper money, based on land
in French Revolution,
26, 27
idea of debentures evolved

from, 24
plans for issue of, against
land in Massachusetts
Bay, 28

Partnerships, disadvantages
of, 250
distinguished from cooper-
ative associations, 248,
249

Peasants, condition of, in
Europe, 14

Peasants' Christian League,
Holland, 387

Peasants' Cooperative Mort-
gage Bank, Holland,
387

Peasants' League of Belgium,
384, 386

Feasants' State Land Bank,
Russia, 169-172

608

INDEX

PeequeuT, 321

Penn, WilKam, grant to, 250
Pennsylvania, grant of, to
William Penn, 250
land credit in, 28
Pensions to retired employees
of Credit Foncier, 117
to Silesian landschaft offi-
cials, 47, 69
People's Bank of Menton, 323
People's Bank of Milan, 347,

348
People's banks, compared with
mutual savings banks,
458
in Germany, 263-280
aim of, 287
Bureau of Exchange of,

280
federation of, 279
in Italy, classes reached by,
353
compared with Schulze-
Delitzsch banks, 348,
349
organization and manage-
ment of, 350-352
origin of, 347, 348
relation of, to agriculture,

353, 354
scope of, 352
statistics for, 348
in Quebec, 449-461
in Boumania, 405
in United States, 446
origia of, 257
See also Schulze-DeHtzseh

People's Banks.
People's state banks in Lux-
emburg, 389
Perier, Casimir, 111-113

Permanent committee of the
Silesian landschaft, 53,
54

Pesth Savings and Loan So-
ciety, 371

Philippines, Agrieultu ral
Bank of, 192, 103

Pious Works of Saint Paul of
Turin, 141

Plunkett, Sir Horace, 440,
441, 457

Poland, land-credit institu-
tions for nobles in, 218

Pomerania, landschaft in, 77,
78, 81, 85, 86
public insurance company
founded in, 207

Pomeranian Ritterschaft

Bank, 104

Portugal, misericordias and
celleiros of, 419-421
modem agricultural mu-
tual credit system of,
421-426

Posen, landschaft of, 82

Provincial Credit Associa-
tion for, 83, 84
public insurance company
founded in, 207

Posiios, Spanish, 415-417

Potash Purchasing Company,
Germany, 303

Premiums, issue of, with de-;
bentures, by Credit
Eoncier, 125, 126
by Mexican mortgage
banks, 198

Prince Eupert, 251

Prizes, issue of, with debai-
tures, by Credit Fon-
cier, 125, 126, 218, 222

INDEX

509

Prizes, by Mexican mortgage

banks, 198
Productive credit, 3
Promotion banks, Mexican,

200, 201
Proudbon, 321
Provident Aid Bank, Limoges,

322
Provident societies for natives

in Tunis, 437, 438
Provincial agriciiltural banks,

Italy, 361, 362
Provincial aid to agricultural
cooperation in Austria,
369
Provincial Bank for the Ba-

silicata, 360
Provincial cooperative banks,

Germany, 306-309
Provincial Credit Association
for the Grand Duchy of
Posen, 83, 84
Prussia, central landschaft of,
89-91
mortgage debt in, 4
organization of land credit

in, 26
origin of landschafts in, fol-
lowing Seven Tears'
War, 36
state aid to cooperation in,
300-302, 309
Prussian Central Cooperative
Bank, 313
creation of, 309
operations of, 310
organization of, 309, 310
relations of, with other in-
stitutions, 311
statistics of, 310-311,
312

Prussian Central Land Credit

Company, 108-110
Public granaries in Japan, 433
in Bussia, 401
in Servia, 408, 409
in Spain. See Posiios.
Pure land-credit banks, 107
"Purge" for mortgages, of the
Credit Foncier, 121

Quebec, Caisse Populaire of,
445-449
cooperative banks in, 446,

450
law of 1906 for cooperative
associations in, 449,
450

Queensland (Australia) land-
credit commission, 194,
195

Eagu, Abbot, 322
Raiffeisen, Amelia, 290
Eaiffeisen, Frederick William.
Henry, compulsory
audit favored by, 303
contribution of, to cooper-
ative credit, 294, 295
early work of, for coopera-
tion, 284, 285
influence of, in France, 325,
329
in Germany, 440
in Hungary, 371, 372
Ufe and character of, 281-

284
work of, for cooperation,
284-286
Eaiffeisen, Fassbender & Co.,
290

510

INDEX

Eaiffeisen cooperative credit
societies, agitation for,
in Italy, 354
collective purchasing by, 473
in Austria, 366-368

compared with the Ger-
man societies, 367
in Belgium, 384, 385
in Bulgaria, 411
in colonies of European

powers, 437
in Cyprus, 413, 414
in European Turkey, 413
in Germany, aim of, 287,
288
attempted affiliation of,
with Imperial Federa-
tion, 297, 303
Central Agricultural Loan
Bank of, 290, 291, 306,
308
collective purchase and

sales features of, 317
foundation fund of, 288
General Federation of,

291
how they comply with the

law, 314
mortgages taken by, 104
no dividends distributed

by, 287
no salaries allowed offi-
cers of, 287
objects of, 289
reserves of, indivisible,
287
in Holland, 387

in Himgaiy, 372, 379
in Ireland, 441, 442
in Montenegro, 413
in Kussia, 396, 397

Eaiffeisen cooperative credit

societies, in Servia, 407
in Spain, 417, 418
in Switzerland, 392
objects of, 478
scope and spirit of, 292
why best for American

farmers, 477
Eaiffeisen system, adoption of,

in Italy, 355
beginnings of, 285, 286
Central Agricultural Loan

Bank and, 290, 291
centralization of, 290
collective purchases by, 289,

290
differences between Schulze-

Delitzsch banks and,

286-288
failures in, -304
General Federation of Eural

Cooperative Societies

and, 290, 291
growth of, 286
organization and adminis-
tration of, 288-290
provincial unions in, 291,

292
reasons for success of, 292-

295
Eayneri, Charles, activities of,

in cooperation, 322,

323
Eeal-estate credit, use of, 7,

8. See also Land

credit.
Eegional banks, 474
of Algeria, 437
of Tunis, 437
See also Eural regional

banks.

INDEX

511

Eegistrars in British India,
■wide discretion allowed
to, 431

Eenckhoff, W., 259

Eent-Charge Bank of the
Grand Duchy of Hesse-
Darmstadt, 206

Eent-charge banks, Germany,
97-100

Eibet, 436

Eice granaries, Japanese, 433

Eitterschaft, definition of,
35

Eobinson, Leonard, activities
of, for rural cooperative
credit in the United
States, 452, 453

Eochedale, Equitable Pio-
neers of, 254, 255

Eoman Catholic Church, atti-
tude of, toward cooper-
ative credit, 357, 358
rural cooperation in Hol-
land aided by, 386

Eostand, Eugene, 322, 345

Eothschild, Baron, 414

Eomnania, cooperative credit
in, 405, 406
state aid to, 406
landschafts established in,

in 1873, 174
Eural Bank of, 174

Eoyal Bank, of John Law,
25

Eoyal Bank, Scotland, 270,

271
Eoyal Credit Institute for

Silesia, 74
Eoyer, Charles Edward, 22, 36,

112, 324
Eural Bank of Eoumania, 174

Eural cooperative banks, in
France, law of 1894 on,
332
membership of, 333, 338
relation of, to syndicats,

332, 333, 337
statutory provisions relat-
ing to, 338
in the United States, Jew-
ish, 452-454
Eural cooperative credit so-
cieties, advantages of,
473
characteristics of, 461, 462
classified by presence or ab-
sence of shares, 463
collective purchase, sale and
manufacture by, 472,
473
distribution of profits of,

472
federations of, 474
finances of, 463, 464
in Austria, 366-368
central banks for, 367
rapid development of, 368
state and provincial aid

to, 368-370
statistics of failures of,
370
in Belgium, 385, 386
in Bulgaria, 411
in Denmark, 389, 390
iu Egypt, 436, 437
in England and Wales, 444,

445
in France, 324, 332-336, 338-

341
in Germany, in 1912, 286
in Holland, 387

central banks of, 387, 388

513

INDEX

Rural cooperative credit socie-
ties, in Ireland, 441,
442, 443
in Italy, 146, 147
distribution of, 359
first, 354-356
growth of, 356, 357
loans of, 358
statistics for, 358, 359
in Spain, history of, 417
organization and opera-
tion of, 418
statistics -of 1913, 418
syndical character of, 417
in Switzerland, 392, 393
length of loans of, 472
members not all farmers,

462
not benevolent institutions,

466
procedure in formation and
development of, 474-479
similarity of aU systems of,

in Europe, 473
sources of funds of, 463
special privileges of, 464
See also Baifieisen societies,
Baiffeisen system, and
names of various coim.-
tries.
Rural cooperative savings and
loan societies, Russian.
8ee Cooperative savings
and loan societies.
Rural cooperative systems,
European,- outline of,
473, 474
in Germany, 469-472
Rural credits movement in
United States, preface,
object of, 9

Rural regional banks, in
France, credit extended
by, 336
first formed, 337
growth of, 337
powers of, 335
provisions for, in Meline

law, 335, 336
relations of, with local

banks, 341
right of, to issue bonds,

344
state aid to, 336, 343
statistics for. 1912, 342
in Germany, inspection of,
313
operation of, 307, 308
organization of, 307
statistics of, 308, 309
organization and manage-
ment of, 341, 342
powers of, 341
Russia, agrarian troubles in,
171
artel in, 396
Bank of, 400
central credit banks in, 402,

403
Courland, 174
cooperative credit societies

of, 398, 399
early cooperative loan and
savings societies in, 396
emancipation of serfs in,

169, 170
Esthonia, 174

extent of cooperation in, 395
federation of cooperative
credit societies in, 399,
400
Finland, 173, 174

INDEX

513

Eussia, land-credit system in,

218
land projects in, 168-170
legislation on cooperative

credit in, 397, 401, 402
Livonia, 174
long-term loans in, 211
Peasants' State Land Bank

of, 169-173
rural population of, 393
small credit institutions of,

397, 398
state aid in, 215, 396, 397,

401, 402

Saghalien, 189

San Marino, [Republic of,

Italian cooperat ive

banks available for, 426

Sardinia, Casse Ademprivili

of, 361, 362
Savings and Aid Bank, Bez-

stercze, Hungary, 371
Savings and loan associations,
general methods of, 240
nature of membership of,

239
not adapted to farmers, 241
of New York, absence of
rural element in, 239
Bank of New York and,

235-239
condition of, in 1914, 234,

235
statutory powers and
methods of, 232-234
of Ohio, 240
reasons for soimdness of,

242
Eussian, 396
Savings Bank of Bologna, 141

Savings Bank of Grand Duchy

of Luxemburg, 389
Savings Bank of Milan, 141
Savings Bank of Nicosia, Cy-
prus, 413, 414
Savings Bank of Verona, 141
Savings Bank of Victoria, 194
Savings banks, extinguish-
ment of loans by, 18
French, 333

possible aids to rural co-
operative credit, 344
German, 102, 103
Say, Leon, 322

Schlosshalde, first Swiss rural
cooperative credit so-
ciety in, 392
Schoelinde, early credit asso-
ciation at, 365
Schulze-Delitzsch, 456
death and reputation of, 268
early life of, 263-265
ideas of, regarding sys-

temization, 306
influence of, in France, 324,
329
on Luzzatti, 347
on Eaiffeisen, 259, 285
principles of, in Eussia, 397
theory of, of cooperation,

256-258
work of, for cooperation,
265-268
Schulze-Delitzsch People's
Banks, classes inter-
ested in, 274
compared with people's

banks in Italy, 348
decentralization of, 279, 280
differences between Eaiffei-
sen system and, 286-288

514

INDEX

Schulze-Delitzsch People's
Banks, in Austria, 365,
366
in Belgium, 383
in Germany, 263-280

opposition of, to Prussian
Central Cooperative
Bank, 311
statistics of, 1911, 319, 320
in Hungary, 371
in Eussia, 398
in Switzerland, 391
organization and operation

of, 275-279
plan of, 272-274
See also People's banks.
Scotcli banks, 270, 271
Scotcb credit. See Cash

credit.
Scotland, Agricultural Or-
ganization Society of,
445
Board of Agriculture of,

151-153
cooperative associations of,

445
Land Court of, 151, 152
land-credit experiments in,

25
landholder in, 151, 152
relation between landlord

and tenant in, 151
small holder in, 151, 152
Scottish Agricultural Organi-
zation Society, 439, 445
Scottish Drainage and Im-
provement Company,
159
Scrip, issue of, on land, in

United States, 31
Sebastian, King, 420

Sequestration, 217
Servia, central banks in, 408
cooperative banks in, 407,

408
general union of cooperative

credit societies in, 408
land credit in, 175
public granaries of, 408, 409
Servian Federation at Zagrab,

379
Settlement commission, Ger-
many, 97
Settlers' Board of New South

Wales, 194
Seven Tears' War, 36

results of, 37
Short-term credit. See Short-
term loans.
Short-term loans, 3, 4, 8
in Germany, 101
of Credit Foncier, 118
of French rural cooperative

■ banks, 340
of Hungarian credit socie-
ties, 377
of Italian rural credit so-
cieties, 358
of regional bank of France,
343
Shubrah-el-Namlah, rural co-
operative credit society
at, 437
Siberia, colonization of, 169
Silesia, area and population
of, 45
first landschaft created in,

43
land-credit system of. See

Landschaft, Silesian.
public insurance company
founded in, 207

INDEX

515

Silesian landschaft. iS^ee

LandscHaft, Silesian.
Sinking fund of land-credit

institutions, 219, 220
"Small credit institutions,"

Eussia, 397, 398
Small Holdings and Allot-
ments Act, 1908, Great
Britain, 148-151
Socialism, cooperation and,
253, 254, 373
origin of, 253
Societe Credit Immobilier,

France, 134, 135
Societe du Credit Agricole,

325, 326, 327
Soule, 323

Sous-Comptoir des Entrepren-
eurs de Batiment, 118
connection of, witt the
Credit Foncier, 128,
129
establishment of, 128
functions of, 128, 129
methods of, of lending, 129,

130
security demanded by, 130
South Australia, state bank

of, 193
South Seas, monopolies of

companies over, 250
Spain, banks of, 418
early efforts at cooperation

in, 255
legislation on cooperative

credit in, 419
Mortgage Bank of, 416,

418
need of credit in, 415,

416
positos of, 415-417

Spain, project for National
Agricultural Credit
Institute in, 419
rural cooperative credit so-
cieties in, 417, 418
Special privileges, grant of,
13, 14
to agricultural associations

in Spain, 417, 419
to Central Cooperative Bank

of Bulgaria, 413
to cooperative credit socie-
ties in Belgium, 382
to land credit in France,

111, 224
to land-credit institutions,

11, 224
See also State aid.
Speculation, prohibited in
Silesian landschaft, 68
State Advances Act of South

Australia, 193

State aid, attitude of Schulze-

Delitzsch banks toward,

274

effect of, on cooperation, 261

for agricultural banks in

France, 260
for agricultural cooperation
in Austria, 368-370
in France, 333-336
for agricultural credit in

£o;imania, 406
for cooperative credit, in
British India, 428
in Denmark, 389
in England and Wales,

443
in Finland, 404
in France, 343, 344, 469
in Germany, 309-311

616

INDEX

State aid for cooperative cred-
it, in Holland, 387,388
in Hungary, 373

bad effect of, 378
in Ireland, 442, 443
in Italy, 359-363
in Prussia, 300-302, 309
in Eoumania, 406
in Eussia, 396, 397, 401,

402
in Spain, 419
in Tunis, 437
for home colonization in
Finland, 173
in New Zealand, 195
for land-credit institutions,
224
conditions calling for,

224, 225
in Egypt, 188
in Europe, 11, 13, 14, 15
in France, 111, 113
in Japan, 191
in Norway, 184-186
in Eussia, 215
for land improvement in

France, 336
in Great Britain and Ire-
land, 158-160
in Sweden, 183, 184
in organization of German

landschafts, 77
opposition of Schulze-De-

litzsch to, 257
to Agrarian Credit Insti-
tute of Liguria, 362
to agricultural credit insti-
tution of Marches of
Umbria, 362
to Boden-Kredit Institut,
Hungary, 165

State aid, to cooperative soci-
eties in Germany, 300-
302

to Hungarian Centre, 373-
375

to Irish Agricultural Or-
ganization Society, 441

to land-credit institutions
in Germany, 93

to mutual credit system in
Algeria, 437

to provincial agricultural
banks in Italy, 361

to Provincial Bank for the
Basilicata, 360

to rural cooperative credit
societies in Belgium,
385

to Victor Emanuel Bank,
360, 361
State Bank of South Aus-
tralia, 193
State banks of Luxemburg,

389
State invalidity and old age
insurance institutions,
Germany, 99, 100
von Steiger, 392
Storks, Sir Henry, 429
Strassburg, grain-selling asso-
ciations of, 304
Sweden, amortization in, 19

cooperative credit in,
391

cooperative law of 1911 in,
391

General Mortgage Bank of,
182, 183

government appropriations
for land improvement
in, 184

INDEX

517

Sweden, land-credit system of,
211, 218
landowners' mortgage asso-
ciations of, 181, 182,
183
long-term loans in, 211
Swedish General Mortgage

Bank, 182, 183, 218
Swiss Union of Eaiffeisen

Banks, 392
Switzerland, banks in, 393
cooperative purcliase of cat-
tle in, 393, 394
credit unions in, 382
land-credit institutions in,

176-179
land-credit system of, 218
long-term loans in, 211
people's banks in, 391
rural cooperative societies
in, 392, 393
Syndical associations, France,

119
Syndical banks, France, 333.
See also Eegional agri-
cultural banks.
Syndicalism, 260, 262, 328,
460
adopted by rural cooperative

credit system, 385
beginning of, in agriculture,
328
Syndicats, Belgian, 385
French, 320

cooperative credit and,

332, 333
distinguished from asso-
ciations, 330
formation of, under law

of 1884, 330, 331
growth of, 333

Syndicats, French, in coopera-
tive systems, 473
law of 1884 on, 329
objects of, 331
scope of, 331, 332
Portuguese, 422

Taiwan Bank, Japan, 189

Taxation, excessive, in United
States, 224

Telephone companies, mutual,
in the United States,
460

Territorial Bank of Cuba, 206

Territorial Credit Establish-
ment for Baltic Prov-
inces, 174

Texas, rural credit unions in,
479

Thurgau, Switzerland, co-
operative cattle buying
in, 393, 394

Torrens system, 121, 216

Traber, 392, 457

Trade imions, advent of co-
operation with, 254
EngUsh, 254

Treves, imion of, 300
banks of, 306

Tunis, cooperative banks in,
437
provident societies for na-
tives of, 437, 438

Turkey, European, Eeifieisen
society in, 413

Union, misuse of word, 480
Union cooperative banks, Ger-
many, 306-309
Unions, cooperative, in Ger-
many, 299, 300

518

INDEX

TTnions, cooperative, in Ger-
many, compulsory out-
side audit for, 302, 303
source of income of, 302
state aid to, 300-302

in cooperative systems, 4Y3,
4Y4
Unlimited liability, why safe,

293
United States, absence of
peasant class in, 224

agricultural credit in, 5-8

agricultural population of,
contrasted with Euro-
pean peasantry, 14, 15

agricultural wealth in, 9

agriculture in, 6, 7, 9

area of farms in, 6

building and loan associa-
tions in, 447, 457

cooperative credit among
Jewish farmers of, 451,
452

credit institutions in, com-
pared with those of Eu-
rope, 15

defects of credit system in,
8

desirability of landschafts
in, 242-244

excessive taxation in, 224

farmers' debt of 1910 in, 5-8

Federal Eeserve Act of, 8, 9

first appearance of cooper-
ative credit in, 254

general agitation of rural
credit idea in, 452

history of cooperative credit
in, preface

inadequacy of credit facili-
ties in, 5, 212

United States, interest rates
in, 5
Jewish Agricultural and In-
dustrial Aid Society of,
218
Jewish agricultural colonies

in, 454
Jewish population of, 451
Jewish rural cooperative

banks in, 452-455
lack of rural cooperative

credit system in, 460
legislation on cooperative
credit required in, 479,
480
' mortgage debt in, 4
mutual savings banks of,
administration of, 458
contrasted with European

people's banks, 458
number and business of,
457
mutual insurance in, 459, 460
mutual telephone companies

in, 460
people's banks in, 446
rural cooperative institu-
tions in, 460
rural credits movem.ent in,

preface
supremacy of, in cooperative
finance, 459
in mutual banking, 459
"Urbarians," 163
Uruguay, land credit in, 205
Utrecht Central Bank, Hol-
land, 388

Victor Emanuel Bank, 360
Victoria, Savings Bank Act
of, 194

INDEX

519

Yidal, 321

Vienna, early credit associa-
tion at, 365

Viger, Albert, 332, 335 '

Vranovo, first cooperative
bank in Servia at, 407

Waldeck-Eonsseau, 331
Wales, Farmers' Central

Trading Board of,

439
See also Great Britain.
Warsaw Cooperative Bank,

402
Webster, Daniel, 252
West Prussia, landsehaft in,

Y7, 78, 81, 82, 85, 86
public insurance company

founded in, 207
Western Australia, Bank of,

193, 194
von Westerode, de Wolff,

438
Windhoek credit society, Ger-
man Southwest Africa,

438
Wisconsin, cooperative credit

associations in, 479

Wisconsin, Land Mortgage As-
sociations Act of, 229-
232
Wolff, Dr. Charles, 372
Wolff, Henry W., 441, 446
account of the Westerwald

by, 258
influence of, in Ireland, 441
opinion of, on Canadian

people's banks, 446
work of, for cooperative
credit in British India,
429, 430
Wollemborg, Leone, 371
public career of, 346
work of, 357
Wolowski, Louis, 112
Wiirttemberg, union of, 300
banks of, 306

Zamora, Spain, rural credit
societies in, 418

Zemstvo people's banks, Eus-
sia, 401, 402

Ziller, 456
Federation of Schulze-De-
litzsch Societies of Aus-
tria founded by, 366

(1)