Generated for (University of
Chicago)
on 2014-06-10 03:29 GMT / http://hdl.
Louis Brandeis - 1914 - Other People's Money, and How Bankers Use It
As Henry W.
Wolff says in his
book on cooperative banks:
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 216 OTHER PEOPLE'S MONEY
"Propagating themselves by their own merits,
little people's cooperative banks have overspread
Germany, Italy, Austria, Hungary, Switzerland,
Belgium. Russia is following up those countries;
France is striving strenuously for the possession
of cooperative credit. Servia, Roumania, and
Bulgaria have made such credit their own.
Canada has scored its first success on the road to
its acquisition. Cyprus, and even Jamaica, have
made their first start. Ireland has substantial
first-fruits to show of her economic sowings.
"South Africa is groping its way to the same
goal. Egypt has discovered the necessity of
cooperative banks, even by the side of Lord
Cromer's pet creation, the richly endowed 'agri-
cultural bank. ' India has made a begin-
ning full of promise. And even in far Japan,
and in China, people are trying to acclimatize
the more perfected organizations of Schulze-
Delitzsch and Raffeisen. The entire world
seems girdled with a ring of cooperative credit.
Only the United States and Great Britain still
lag lamentably behind. "
bankers' savings banks
The saving banks of America present a striking
contrast to these democratic banks. Our savings
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 217
banks also have performed a great service. They
have provided for the people's funds safe deposi-
tories with some income return. Thereby they
have encouraged thrift and have created, among
other things, reserves for the proverbial "rainy
day. " They have also discouraged "old stock-
ing" hoarding, which diverts the money of the
country from the channels of trade. American
savings banks are also, in a sense, banks of the
people; for it is the people's money which is
administered by them. The $4,500,000,000 de-
posits in 2,000 American savings banks belong to
about ten million people, who have an average
deposit of about $450. But our savings banks
are not banks by the people, nor, in the full
sense, for the people.
First: American savings banks are not man-
aged by the people. The stock-savings banks,
most prevalent in the Middle West and the
South, are purely commercial enterprises, man-
aged, of course, by the stockholders' representa-
tives. The mutual savings banks, most prevalent
in the Eastern states, have no stockholders; but
the depositors have no voice in the management.
The banks are managed by trustees/or the people,
practically a self-constituted and self-perpetuat-
ing body, composed of "leading" and, to a large
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 218 OTHER PEOPLE'S MONEY
extent, public-spirited citizens. Among them
(at least in the larger cities) there is apt to be a
predominance of investment bankers, and bank
directors. Thus the three largest savings banks
of Boston (whose aggregate deposits exceed
those of the other 18 banks) have together 81
trustees. Of these, 52 are investment bankers or
directors in other Massachusetts banks or trust
companies.
Second: The funds of our savings banks
(whether stock or purely mutual) are not used
mainly for the people. The depositors are
allowed interest (usually from 3 to 4 per cent. ).
In the mutual savings banks they receive ulti-
mately all the net earnings. But the money
gathered in these reservoirs is not used to aid
productively persons of the classes who make
the deposits. The depositors are largely wage
earners, salaried people, or members of small
tradesmen's families. Statically the money is
used for them. Dynamically it is used for the
capitalist. For rare, indeed, are the instances
when savings banks moneys are loaned to ad-
vance productively one of the depositor class.
Such persons would seldom be able to provide
the required security; and it is doubtful whether
their small needs would, in any event, receive
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 219
consideration. In 1912 the largest of Boston's
mutual savings banks--the Provident Institu-
tion for Savings, which is the pioneer mutual
savings bank of America--managed $53,000,-
000 of people's money. Nearly one-half of the
resources ($24,262,072) was invested in bonds--
state, municipal, railroad, railway and telephone
and in bank stock; or was deposited in national
banks or trust companies. Two-fifths of the
resources ($20,764,770) were loaned on real
estate mortgages; and the average amount of
a loan was $52,569. One-seventh of the re-
sources ($7,566,612) was loaned on personal
security; and the average of each of these loans
was $54,830. Obviously, the "small man" is
not conspicuous among the borrowers; and these
large-scale investments do not even serve the
individual depositor especially well; for this
bank pays its depositors a rate of interest lower
than the average. Even our admirable Postal
Savings Bank system serves productively mainly
the capitalist. These postal saving stations
are in effect catch-basins merely, which collect
the people's money for distribution among the
national banks.
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 220 OTHER PEOPLE'S MONEY
PROGRESS
Alphonse Desjardins of Levis, Province of
Quebec, has demonstrated that cooperative credit
associations are applicable, also, to at least
some urban communities. Levis, situated on the
St. Lawrence opposite the City of Quebec, is a
city of 8,000 inhabitants. Desjardins himself is
a man of the people. Many years ago he became
impressed with the fact that the people's savings
were not utilized primarily to aid the people pro-
ductively. There were then located in Levis
branches of three ordinary banks of deposit--a
mutual savings bank, the postal savings bank,
and three incorporated "loaners"; but the peo-
ple were not served. After much thinking, he
chanced to read of the European rural banks.
He proceeded to work out the idea for use in
Levis; and in 1900 established there the first
"credit-union. " For seven years he watched
carefully the operations of this little bank.
The pioneer union had accumulated in that
period $80,000 in resources. It had made 2900
loans to its members, aggregating $350,000; the
loans averaging $120 in amount, and the interest
rate 6 1/2 per cent. In all this time the bank
had not met with a single loss. Then Desjardins
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 221
concluded that democratic banking was appli-
cable to Canada; and he proceeded to establish
other credit-unions. In the last 5 years the
number of credit-unions in the Province of
Quebec has grown to 121; and 19 have been
established in the Province of Ontario. Des-
jardins was not merely the pioneer. All the
later credit-unions also have been established
through his aid; and 24 applications are now in
hand requesting like assistance from him. Year
after year that aid has been given without pay
by this public-spirited man of large family and
small means, who lives as simply as the ordi-
nary mechanic. And it is noteworthy that this
rapidly extending system of cooperative credit-
banks has been established in Canada wholely
without government aid, Desjardins having
given his services free, and his travelling
expenses having been paid by those seeking his
assistance.
In 1909, Massachusetts, under Desjardin's
guidance, enacted a law for the incorporation of
credit-unions. The first union established in
Springfield, in 1910, was named after Herbert
Myrick-- a strong advocate of cooperative finance.
Since then 25 other unions have been formed;
and the names of the unions and of their officers
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 222 OTHER PEOPLE'S MONEY
disclose that 11 are Jewish, 8 French-Canadian,
and 2 Italian--a strong indication that the
immigrant is not unprepared for financial de-
mocracy. There is reason to believe that these
people's banks will spread rapidly in the United
States and that they will succeed. For the
cooperative building and loan associations, man-
aged by wage-earners and salary-earners, who
joined together for systematic saving and owner-
ship of houses--have prospered in many states.
In Massachusetts, where they have existed for
35 years, their success has been notable--the
number, in 1912, being 162, and their aggregate
assets nearly $75,000,000.
Thus farmers, workingmen, and clerks are
learning to use their little capital and their sav-
ings to help one another instead of turning over
their money to the great bankers for safe keep-
ing, and to be themselves exploited. And may
we not expect that when the cooperative move-
ment develops in America, merchants and manu-
facturers will learn from farmers and working-
men how to help themselves by helping one
another, and thus join in attaining the New Free-
dom for all? When merchants and manufacturers
learn this lesson, money kings will lose subjects,
and swollen fortunes may shrink; but industries
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 223
will flourish, because the faculties of men will be
liberated and developed.
President Wilson has said wisely:
"No country can afford to have its prosperity
originated by a small controlling class. The
treasury of America does not lie in the brains of
the small body of men now in control of the
great enterprises. . . . It depends upon the
inventions of unknown men, upon the originations
of unknown men, upon the ambitions of unknown
men. Every country is renewed out of the ranks
of the unknown, not out of the ranks of the
already famous and powerful in control. "
THE END
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE UNIVERSITY LIBRARY
UNIVERSITY OF CALIFORNIA, SANTA CRUZ
This book is due on the last DATE stamped below.
? KM 1 8 1366
APP 23 77
JUL 6 *66
APR 25 REC'O
FEB 51975
r tL* Uo Bo is]
JAN 2 7 1986 REC'D
FEB 19 1975
FEB t 5 RECD
ACS 29 75
JUN 0 4 1990'ffr''o
JUN 12 RECTI
- M n o ? nrA RFC'D
Sip 17 76 *
OCT 3176
1 OOm-8,'-6)5? FT2^sJ) 2? R? C*D
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? HG181. B8 1932
3 2106 00097 8228
? ?
Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust.
book on cooperative banks:
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 216 OTHER PEOPLE'S MONEY
"Propagating themselves by their own merits,
little people's cooperative banks have overspread
Germany, Italy, Austria, Hungary, Switzerland,
Belgium. Russia is following up those countries;
France is striving strenuously for the possession
of cooperative credit. Servia, Roumania, and
Bulgaria have made such credit their own.
Canada has scored its first success on the road to
its acquisition. Cyprus, and even Jamaica, have
made their first start. Ireland has substantial
first-fruits to show of her economic sowings.
"South Africa is groping its way to the same
goal. Egypt has discovered the necessity of
cooperative banks, even by the side of Lord
Cromer's pet creation, the richly endowed 'agri-
cultural bank. ' India has made a begin-
ning full of promise. And even in far Japan,
and in China, people are trying to acclimatize
the more perfected organizations of Schulze-
Delitzsch and Raffeisen. The entire world
seems girdled with a ring of cooperative credit.
Only the United States and Great Britain still
lag lamentably behind. "
bankers' savings banks
The saving banks of America present a striking
contrast to these democratic banks. Our savings
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 217
banks also have performed a great service. They
have provided for the people's funds safe deposi-
tories with some income return. Thereby they
have encouraged thrift and have created, among
other things, reserves for the proverbial "rainy
day. " They have also discouraged "old stock-
ing" hoarding, which diverts the money of the
country from the channels of trade. American
savings banks are also, in a sense, banks of the
people; for it is the people's money which is
administered by them. The $4,500,000,000 de-
posits in 2,000 American savings banks belong to
about ten million people, who have an average
deposit of about $450. But our savings banks
are not banks by the people, nor, in the full
sense, for the people.
First: American savings banks are not man-
aged by the people. The stock-savings banks,
most prevalent in the Middle West and the
South, are purely commercial enterprises, man-
aged, of course, by the stockholders' representa-
tives. The mutual savings banks, most prevalent
in the Eastern states, have no stockholders; but
the depositors have no voice in the management.
The banks are managed by trustees/or the people,
practically a self-constituted and self-perpetuat-
ing body, composed of "leading" and, to a large
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 218 OTHER PEOPLE'S MONEY
extent, public-spirited citizens. Among them
(at least in the larger cities) there is apt to be a
predominance of investment bankers, and bank
directors. Thus the three largest savings banks
of Boston (whose aggregate deposits exceed
those of the other 18 banks) have together 81
trustees. Of these, 52 are investment bankers or
directors in other Massachusetts banks or trust
companies.
Second: The funds of our savings banks
(whether stock or purely mutual) are not used
mainly for the people. The depositors are
allowed interest (usually from 3 to 4 per cent. ).
In the mutual savings banks they receive ulti-
mately all the net earnings. But the money
gathered in these reservoirs is not used to aid
productively persons of the classes who make
the deposits. The depositors are largely wage
earners, salaried people, or members of small
tradesmen's families. Statically the money is
used for them. Dynamically it is used for the
capitalist. For rare, indeed, are the instances
when savings banks moneys are loaned to ad-
vance productively one of the depositor class.
Such persons would seldom be able to provide
the required security; and it is doubtful whether
their small needs would, in any event, receive
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 219
consideration. In 1912 the largest of Boston's
mutual savings banks--the Provident Institu-
tion for Savings, which is the pioneer mutual
savings bank of America--managed $53,000,-
000 of people's money. Nearly one-half of the
resources ($24,262,072) was invested in bonds--
state, municipal, railroad, railway and telephone
and in bank stock; or was deposited in national
banks or trust companies. Two-fifths of the
resources ($20,764,770) were loaned on real
estate mortgages; and the average amount of
a loan was $52,569. One-seventh of the re-
sources ($7,566,612) was loaned on personal
security; and the average of each of these loans
was $54,830. Obviously, the "small man" is
not conspicuous among the borrowers; and these
large-scale investments do not even serve the
individual depositor especially well; for this
bank pays its depositors a rate of interest lower
than the average. Even our admirable Postal
Savings Bank system serves productively mainly
the capitalist. These postal saving stations
are in effect catch-basins merely, which collect
the people's money for distribution among the
national banks.
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 220 OTHER PEOPLE'S MONEY
PROGRESS
Alphonse Desjardins of Levis, Province of
Quebec, has demonstrated that cooperative credit
associations are applicable, also, to at least
some urban communities. Levis, situated on the
St. Lawrence opposite the City of Quebec, is a
city of 8,000 inhabitants. Desjardins himself is
a man of the people. Many years ago he became
impressed with the fact that the people's savings
were not utilized primarily to aid the people pro-
ductively. There were then located in Levis
branches of three ordinary banks of deposit--a
mutual savings bank, the postal savings bank,
and three incorporated "loaners"; but the peo-
ple were not served. After much thinking, he
chanced to read of the European rural banks.
He proceeded to work out the idea for use in
Levis; and in 1900 established there the first
"credit-union. " For seven years he watched
carefully the operations of this little bank.
The pioneer union had accumulated in that
period $80,000 in resources. It had made 2900
loans to its members, aggregating $350,000; the
loans averaging $120 in amount, and the interest
rate 6 1/2 per cent. In all this time the bank
had not met with a single loss. Then Desjardins
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 221
concluded that democratic banking was appli-
cable to Canada; and he proceeded to establish
other credit-unions. In the last 5 years the
number of credit-unions in the Province of
Quebec has grown to 121; and 19 have been
established in the Province of Ontario. Des-
jardins was not merely the pioneer. All the
later credit-unions also have been established
through his aid; and 24 applications are now in
hand requesting like assistance from him. Year
after year that aid has been given without pay
by this public-spirited man of large family and
small means, who lives as simply as the ordi-
nary mechanic. And it is noteworthy that this
rapidly extending system of cooperative credit-
banks has been established in Canada wholely
without government aid, Desjardins having
given his services free, and his travelling
expenses having been paid by those seeking his
assistance.
In 1909, Massachusetts, under Desjardin's
guidance, enacted a law for the incorporation of
credit-unions. The first union established in
Springfield, in 1910, was named after Herbert
Myrick-- a strong advocate of cooperative finance.
Since then 25 other unions have been formed;
and the names of the unions and of their officers
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 222 OTHER PEOPLE'S MONEY
disclose that 11 are Jewish, 8 French-Canadian,
and 2 Italian--a strong indication that the
immigrant is not unprepared for financial de-
mocracy. There is reason to believe that these
people's banks will spread rapidly in the United
States and that they will succeed. For the
cooperative building and loan associations, man-
aged by wage-earners and salary-earners, who
joined together for systematic saving and owner-
ship of houses--have prospered in many states.
In Massachusetts, where they have existed for
35 years, their success has been notable--the
number, in 1912, being 162, and their aggregate
assets nearly $75,000,000.
Thus farmers, workingmen, and clerks are
learning to use their little capital and their sav-
ings to help one another instead of turning over
their money to the great bankers for safe keep-
ing, and to be themselves exploited. And may
we not expect that when the cooperative move-
ment develops in America, merchants and manu-
facturers will learn from farmers and working-
men how to help themselves by helping one
another, and thus join in attaining the New Free-
dom for all? When merchants and manufacturers
learn this lesson, money kings will lose subjects,
and swollen fortunes may shrink; but industries
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE OLIGARCH INEFFICIENT 223
will flourish, because the faculties of men will be
liberated and developed.
President Wilson has said wisely:
"No country can afford to have its prosperity
originated by a small controlling class. The
treasury of America does not lie in the brains of
the small body of men now in control of the
great enterprises. . . . It depends upon the
inventions of unknown men, upon the originations
of unknown men, upon the ambitions of unknown
men. Every country is renewed out of the ranks
of the unknown, not out of the ranks of the
already famous and powerful in control. "
THE END
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? THE UNIVERSITY LIBRARY
UNIVERSITY OF CALIFORNIA, SANTA CRUZ
This book is due on the last DATE stamped below.
? KM 1 8 1366
APP 23 77
JUL 6 *66
APR 25 REC'O
FEB 51975
r tL* Uo Bo is]
JAN 2 7 1986 REC'D
FEB 19 1975
FEB t 5 RECD
ACS 29 75
JUN 0 4 1990'ffr''o
JUN 12 RECTI
- M n o ? nrA RFC'D
Sip 17 76 *
OCT 3176
1 OOm-8,'-6)5? FT2^sJ) 2? R? C*D
? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? HG181. B8 1932
3 2106 00097 8228
? ?
Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? ? ? Generated for (University of Chicago) on 2014-06-10 03:29 GMT / http://hdl. handle. net/2027/uc1. 32106000978228 Public Domain, Google-digitized / http://www. hathitrust.
