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.
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.
Louis Brandeis - 1914 - Other People's Money, and How Bankers Use It
Liberty is the greatest developer.
Herod-
otus tells us that while the tyrants ruled, the
Athenians were no better fighters than their
neighbors; but when freed, they immediately
surpassed all others. If industrial democracy--
true cooperation--should be substituted for in-
dustrial absolutism, there would be no lack of
industrial leaders.
England's big business
England, too, has big business. But her big
business is the Cooperative Wholesale Society,
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? THE OLIGARCH INEFFICIENT 209
with a wonderful story of 50 years of beneficent
growth. Its annual turnover is now about
$150,000,000--an amount exceeded by the sales
of only a few American industrials; an amount
larger than the gross receipts of any Amer-
ican railroad, except the Pennsylvania and
the New York Central systems. Its business
is very diversified, for its purpose is to supply
the needs of its members. It includes that of
wholesale dealer, of manufacturer, of grower,
of miner, of banker, of insurer and of carrier.
It operates the biggest flour mills and the biggest
shoe factory in all Great Britain. It manufac-
tures woolen cloths, all kinds of men's, women's
and children's clothing, a dozen kinds of pre-
pared foods, and as many household articles.
It operates creameries. It carries on every
branch of the printing business. It is now
buying coal lands. It has a bacon factory in
Denmark, and a tallow and oil factory in Aus-
tralia. It grows tea in Ceylon. And through
all the purchasing done by the Society runs this
general principle: Go direct to the source of
production, whether at home or abroad, so as
to save commissions of middlemen and agents.
Accordingly, it has buyers and warehouses in
the United States, Canada, Australia, Spain, Den-
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? 210 OTHER PEOPLE'S MONEY
mark and Sweden. It owns steamers plying
between Continental and English ports. It has
an important banking department; it insures the
property and person of its members. Every
one of these departments is conducted in com-
petition with the most efficient concerns in their
respective lines in Great Britain. The Coopera-
tive Wholesale Society makes its purchases, and
manufactures its products, in order to supply
the 1399 local distributive, cooperative societies
scattered over all England; but each local society
is at liberty to buy from the wholesale society,
or not, as it chooses; and they buy only if
the Cooperative Wholesale sells at market prices.
This the Cooperative actually does; and it is
able besides to return to the local a fair dividend
on its purchases.
INDUSTRIAL DEMOCRACY
Now, how are the directors of this great busi-
ness chosen? Not by England's leading bankers,
or other notabilities, supposed to possess unusual
wisdom; but democratically, by all of the people
interested in the operations of the Society. And
the number of such persons who have directly or
indirectly a voice in the selection of the directors
of the English Cooperative Wholesale Society is
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? THE OLIGARCH INEFFICIENT 211
2,750,000. For the directors of the Wholesale
Society are elected by vote of the delegates of the
1399 retail societies. And the delegates of the
retail societies are, in turn, selected by the mem-
bers of the local societies;--that is, by the con-
sumers, on the principle of one man, one vote,
regardless of the amount of capital contributed.
Note what kind of men these industrial democrats
select to exercise executive control of their vast
organization. Not all-wise bankers or their dum-
mies, but men who have risen from the ranks of
cooperation; men who, by conspicuous service
in the local societies have won the respect and
confidence of their fellows. The directors are
elected for one year only; but a director is rarely
unseated. J. T. W. Mitchell was president of
the Society continuously for 21 years. Thirty-
two directors are selected in this manner. Each
gives to the business of the Society his whole
time and attention; and the aggregate salaries
of the thirty-two is less than that of many a
single executive in American corporations; for
these directors of England's big business serve
each for a salary of about $1500 a year.
The Cooperative Wholesale Society of England
is the oldest and largest of these institutions.
But similar wholesale societies exist in 15 other
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? 212 OTHER PEOPLE'S MONEY
countries. The Scotch Society (which William
Maxwell has served most efficiently as President
for thirty years at a salary never exceeding $38
a week) has a turn-over of more than $50,000,000
a year.
A BEMEDT FOR TRUSTS
Albert Sonnichsen, General Secretary of the
Cooperative League, tells in the American Review
of Reviews for April, 1913, how the Swedish
Wholesale Society curbed the Sugar Trust; how
it crushed the Margerine Combine (compelling
it to dissolve after having lost 2,300,000 crowns
in the struggle); and how in Switzerland the
Wholesale Society forced the dissolution of the
Shoe Manufacturers Association. He tells also
this memorable incident:
"Six years ago, at an international congress
in Cremona, Dr. Hans Muller, a Swiss delegate,
presented a resolution by which an international
wholesale society should be created. Luigi Luz-
zatti, Italian Minister of State and an ardent
member of the movement, was in the chair.
Those who were present say Luzzatti paused, his
eyes lighted up, then, dramatically raising his
hand, he said: 'Dr. Muller proposes to the assem-
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? THE OLIGARCH INEFFICIENT 213
bly a great idea--that of opposing to the great
trusts, the Rockefellers of the world, a world-
wide cooperative alliance which shall become so
powerful as to crush the trusts. '"
COOPERATION IN AMERICA
America has no Wholesale Cooperative Society
able to grapple with the trusts. But it has some
very strong retail societies, like the Tamarack
of Michigan, which has distributed in dividends
to its members $1,144,000 in 23 years. The
recent high cost of living has greatly stimulated
interest in the cooperative movement; and John
Graham Brooks reports that we have already
about 350 local distributive societies. The move-
ment toward federation is progressing. There
are over 100 cooperative stores in Minnesota,
Wisconsin and other Northwestern states, many
of which were organized by or through the zealous
work of Mr. Tousley and his associates of the
Right Relationship League and are in some ways
affiliated. In New York City 83 organizations
are affiliated with the Cooperative League. In
New Jersey the societies have federated into the
American Cooperative Alliance of Northern New
Jersey. In California, long the seat of effective
cooperative work, a central management com-
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? 214 OTHER PEOPLE'S MONEY
mittee is developing. And progressive Wisconsin
has recently legislated wisely to develop coopera-
tion throughout the state.
Among our farmers the interest in cooperation
is especially keen. The federal government has
just established a separate bureau of the Depart-
ment of Agriculture to aid in the study, devel-
opment and introduction of the best methods
of cooperation in the working of farms, in buying,
and in distribution; and special attention is now
being given to farm credits--a field of coopera-
tion in which Continental Europe has achieved
complete success, and to which David Lubin,
America's delegate to the International Institute
of Agriculture at Rome, has, among others, done
much to direct our attention.
people's savings banks
The German farmer has achieved democratic
banking. The 13,000 little cooperative credit
associations, with an average membership of
about 90 persons, are truly banks of the people,
by the people and for the people.
First: The banks' resources are of the people.
These aggregate about $500,000,000. Of this
amount $375,000,000 represents the farmers'
savings deposits; $50,000,000, the farmers' cur-
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? THE OLIGARCH INEFFICIENT 215
rent deposits; $6,000,000, the farmers' share
capital; and $13,000,000, amounts earned and
placed in the reserve. Thus, nearly nine-tenths
of these large resources belong to the farmers--
that is, to the members of the banks.
Second: The banks are managed by the people
--that is, the members. And membership is
easily attained; for the average amount of paid-
up share capital was, in 1909, less than $5 per
member. Each member has one vote regardless
of the number of his shares or the amount of
his deposits. These members elect the officers.
The committees and trustees (and often even,
the treasurer) serve without pay: so that the ex-
penses of the banks are, on the average, about
$150 a year.
Third: The banks are for the people. The
farmers' money is loaned by the farmer to the
farmer at a low rate of interest (usually 4 per
cent. to 6 per cent. ); the shareholders receiving,
on their shares, the same rate of interest that
the borrowers pay on their loans. Thus the
resources of all farmers are made available to
each farmer, for productive purposes.
This democratic rural banking is not confined
to Germany. As Henry W. Wolff says in his
book on cooperative banks:
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? 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
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? 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
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? 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
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? 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.
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? 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
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? 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
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? 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
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? 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.
otus tells us that while the tyrants ruled, the
Athenians were no better fighters than their
neighbors; but when freed, they immediately
surpassed all others. If industrial democracy--
true cooperation--should be substituted for in-
dustrial absolutism, there would be no lack of
industrial leaders.
England's big business
England, too, has big business. But her big
business is the Cooperative Wholesale Society,
? ? 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 209
with a wonderful story of 50 years of beneficent
growth. Its annual turnover is now about
$150,000,000--an amount exceeded by the sales
of only a few American industrials; an amount
larger than the gross receipts of any Amer-
ican railroad, except the Pennsylvania and
the New York Central systems. Its business
is very diversified, for its purpose is to supply
the needs of its members. It includes that of
wholesale dealer, of manufacturer, of grower,
of miner, of banker, of insurer and of carrier.
It operates the biggest flour mills and the biggest
shoe factory in all Great Britain. It manufac-
tures woolen cloths, all kinds of men's, women's
and children's clothing, a dozen kinds of pre-
pared foods, and as many household articles.
It operates creameries. It carries on every
branch of the printing business. It is now
buying coal lands. It has a bacon factory in
Denmark, and a tallow and oil factory in Aus-
tralia. It grows tea in Ceylon. And through
all the purchasing done by the Society runs this
general principle: Go direct to the source of
production, whether at home or abroad, so as
to save commissions of middlemen and agents.
Accordingly, it has buyers and warehouses in
the United States, Canada, Australia, Spain, Den-
? ? 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
? 210 OTHER PEOPLE'S MONEY
mark and Sweden. It owns steamers plying
between Continental and English ports. It has
an important banking department; it insures the
property and person of its members. Every
one of these departments is conducted in com-
petition with the most efficient concerns in their
respective lines in Great Britain. The Coopera-
tive Wholesale Society makes its purchases, and
manufactures its products, in order to supply
the 1399 local distributive, cooperative societies
scattered over all England; but each local society
is at liberty to buy from the wholesale society,
or not, as it chooses; and they buy only if
the Cooperative Wholesale sells at market prices.
This the Cooperative actually does; and it is
able besides to return to the local a fair dividend
on its purchases.
INDUSTRIAL DEMOCRACY
Now, how are the directors of this great busi-
ness chosen? Not by England's leading bankers,
or other notabilities, supposed to possess unusual
wisdom; but democratically, by all of the people
interested in the operations of the Society. And
the number of such persons who have directly or
indirectly a voice in the selection of the directors
of the English Cooperative Wholesale Society is
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? THE OLIGARCH INEFFICIENT 211
2,750,000. For the directors of the Wholesale
Society are elected by vote of the delegates of the
1399 retail societies. And the delegates of the
retail societies are, in turn, selected by the mem-
bers of the local societies;--that is, by the con-
sumers, on the principle of one man, one vote,
regardless of the amount of capital contributed.
Note what kind of men these industrial democrats
select to exercise executive control of their vast
organization. Not all-wise bankers or their dum-
mies, but men who have risen from the ranks of
cooperation; men who, by conspicuous service
in the local societies have won the respect and
confidence of their fellows. The directors are
elected for one year only; but a director is rarely
unseated. J. T. W. Mitchell was president of
the Society continuously for 21 years. Thirty-
two directors are selected in this manner. Each
gives to the business of the Society his whole
time and attention; and the aggregate salaries
of the thirty-two is less than that of many a
single executive in American corporations; for
these directors of England's big business serve
each for a salary of about $1500 a year.
The Cooperative Wholesale Society of England
is the oldest and largest of these institutions.
But similar wholesale societies exist in 15 other
? ? 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
? 212 OTHER PEOPLE'S MONEY
countries. The Scotch Society (which William
Maxwell has served most efficiently as President
for thirty years at a salary never exceeding $38
a week) has a turn-over of more than $50,000,000
a year.
A BEMEDT FOR TRUSTS
Albert Sonnichsen, General Secretary of the
Cooperative League, tells in the American Review
of Reviews for April, 1913, how the Swedish
Wholesale Society curbed the Sugar Trust; how
it crushed the Margerine Combine (compelling
it to dissolve after having lost 2,300,000 crowns
in the struggle); and how in Switzerland the
Wholesale Society forced the dissolution of the
Shoe Manufacturers Association. He tells also
this memorable incident:
"Six years ago, at an international congress
in Cremona, Dr. Hans Muller, a Swiss delegate,
presented a resolution by which an international
wholesale society should be created. Luigi Luz-
zatti, Italian Minister of State and an ardent
member of the movement, was in the chair.
Those who were present say Luzzatti paused, his
eyes lighted up, then, dramatically raising his
hand, he said: 'Dr. Muller proposes to the assem-
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? THE OLIGARCH INEFFICIENT 213
bly a great idea--that of opposing to the great
trusts, the Rockefellers of the world, a world-
wide cooperative alliance which shall become so
powerful as to crush the trusts. '"
COOPERATION IN AMERICA
America has no Wholesale Cooperative Society
able to grapple with the trusts. But it has some
very strong retail societies, like the Tamarack
of Michigan, which has distributed in dividends
to its members $1,144,000 in 23 years. The
recent high cost of living has greatly stimulated
interest in the cooperative movement; and John
Graham Brooks reports that we have already
about 350 local distributive societies. The move-
ment toward federation is progressing. There
are over 100 cooperative stores in Minnesota,
Wisconsin and other Northwestern states, many
of which were organized by or through the zealous
work of Mr. Tousley and his associates of the
Right Relationship League and are in some ways
affiliated. In New York City 83 organizations
are affiliated with the Cooperative League. In
New Jersey the societies have federated into the
American Cooperative Alliance of Northern New
Jersey. In California, long the seat of effective
cooperative work, a central management com-
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? 214 OTHER PEOPLE'S MONEY
mittee is developing. And progressive Wisconsin
has recently legislated wisely to develop coopera-
tion throughout the state.
Among our farmers the interest in cooperation
is especially keen. The federal government has
just established a separate bureau of the Depart-
ment of Agriculture to aid in the study, devel-
opment and introduction of the best methods
of cooperation in the working of farms, in buying,
and in distribution; and special attention is now
being given to farm credits--a field of coopera-
tion in which Continental Europe has achieved
complete success, and to which David Lubin,
America's delegate to the International Institute
of Agriculture at Rome, has, among others, done
much to direct our attention.
people's savings banks
The German farmer has achieved democratic
banking. The 13,000 little cooperative credit
associations, with an average membership of
about 90 persons, are truly banks of the people,
by the people and for the people.
First: The banks' resources are of the people.
These aggregate about $500,000,000. Of this
amount $375,000,000 represents the farmers'
savings deposits; $50,000,000, the farmers' cur-
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? THE OLIGARCH INEFFICIENT 215
rent deposits; $6,000,000, the farmers' share
capital; and $13,000,000, amounts earned and
placed in the reserve. Thus, nearly nine-tenths
of these large resources belong to the farmers--
that is, to the members of the banks.
Second: The banks are managed by the people
--that is, the members. And membership is
easily attained; for the average amount of paid-
up share capital was, in 1909, less than $5 per
member. Each member has one vote regardless
of the number of his shares or the amount of
his deposits. These members elect the officers.
The committees and trustees (and often even,
the treasurer) serve without pay: so that the ex-
penses of the banks are, on the average, about
$150 a year.
Third: The banks are for the people. The
farmers' money is loaned by the farmer to the
farmer at a low rate of interest (usually 4 per
cent. to 6 per cent. ); the shareholders receiving,
on their shares, the same rate of interest that
the borrowers pay on their loans. Thus the
resources of all farmers are made available to
each farmer, for productive purposes.
This democratic rural banking is not confined
to Germany. As Henry W. Wolff says in his
book on cooperative banks:
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? 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
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? 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
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? 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
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? 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.
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? 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
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? 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
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? 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
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? 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
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? 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
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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
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? HG181. B8 1932
3 2106 00097 8228
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? ? ? 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.
