HD UC-NRLF RT S SPECIAL COMMITTEE OF THE HOUSE OF COMMONS TO WHOM WAS REFERRED No. AN ACT RESPECTING INDUSTRIAL AND CO-OPERATIVE SOCIETIES ALSO SN IT II MINUTES OF PROCEEDINGS AM) EVIDENCE, ADDENDUM TO EVIDENCE, AND EXHIBIT No OTTAWA PRINTED BY S. K. DAWSON. PRINTER TO THE KING'S MOST EXCELLENT MAJESTY 1907 GIFT OF DOCUMENTS DEPT. 7 EDWARD VII. APPENDIX No. 3 A. 1907 REPORTS OF THE SPECIAL COMMITTEE OF THE HOUSE OF COMMONS TO WHOM WAS REFERRED ILL No. AN ACT RESPECTING INDUSTRIAL AND CO-OPERATIVE SOCIETIES ALSO WITH MINUTES OF PROCEEDINGS AND EVIDENCE, ADDENDUM TO EVIDENCE, AND EXHIBIT No. 1 OTTAWA PRINTED BY S. E. DAWSON, PRINTER TO THE KING'S MOST EXCELLENT MAJESTY 1907 [App. No. 31907.1 , aA 7 EDWARD VII. APPENDIX No. 3 A. 1907 SPECIAL COMMITTEE ON IE 2, AN ACT 1906-07 ORDER OF REFERENCE. HOUSE OP COMMONS, WEDNESDAY, December 5, 1906. Resolved, That the Bill No. 2, An Act respecting Industrial and Co-operative Societies, be referred to a Special Committee, to be named at the next sitting of the House. Attest, THOS. B. FLINT, Cleric of the House. WEDNESDAY, December 12, 1906. Ordered, That Messieurs Aylesworth, Lemieux, Smith (Nanaimo), Bourassa, Verville, Gervais, Sinclair, White and Monk do compose the said Committee. Attest, THOS. B. FLINT, Clerk of the House. TUESDAY, December 18, 1906. Ordered, That the said Committee have leave to report from time to time. Attest, THOS. B. FLINT, Clerk of the House. TUESDAY, December 18, 1906. Ordered, That the said Committee be empowered to send for persons, papers and records, and to examine witnesses under oath or affirmation; and That they be authorized to employ a shorthand writer to take down such evidence or proceedings as they may deem necesary. Attest, THOS. B. FLINT, Cleric of the House* FRIDAY, February 8, 1907. Ordered, That the evidence being taken by the said Committee be printed day by day for the use of *the Members of the Committee, and that Rule 72 be suspended in relation thereto. Attest, THOS. B. FLINT, 3 i* 3430^ Clerk f the House - iv INDUSTRIAL AND CO-OPERATIVE SOCIETIES * 7 EDWARD VII., A. 1907 REPORTS OF THE SPECIAL COMMITTEE TO WHOM WAS REFERRED Bill No. 2, AN ACT RESPECTING INDUSTRIAL AND CO-OPERATIVE SOCIETIES. FIRST REPORT. TUESDAY, December 18, 1906. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, beg leave to present the following as their First Report. Your Committee recommend: 1. That they be empowered to send for persons, papers and records, and to exam- ine witnesses under oath or affirmation; and 2. That they be authorized to employ a shorthand writer to take down such evi- dence or proceedings as they may deem necessary. All which is respectfully submitted. R. LEMIEUX, Chairman. SECOND REPORT. FRIDAY, February 8, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, beg leave to present the following as their Second Report. Your Committee recommend that the evidence being taken by them be printed day by day for the use of the Members of the Committee, and that Rule 72 be sus- pended in relation thereto. All which is respectfully submitted. R. LEMIEUX, Chairman. THIRD REPORT. FRIDAY, March 1, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, beg leave to present the following as their Third Report. Your Committee recommend that leave be granted to them to sit while the House is in session. All which is respectfully submitted. R. LEMIEUX, Chairman. FOURTH REPORT. THURSDAY, April 11, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, beg leave to present the following as their Fourth Report : Your committee have had under consideration Bill No. 2, An Act respecting In- REPORTS V APPENDIX No. 3 dustrial and Co-operative Societies, and have agreed to report the same with amend- ments. Your committee have held several sittings and taken the evidence of a number of witnesses as to the possible advantages to Canada of legislation upon the lines indicated in above-mentioned Bill, which authorizes the formation of co-operative associations. From this evidence, derived from persons who have made a special study of the co-operative movement in Europe, it appears clearly that co-operation offers very great advantage to the farming classes, particularly in certain branches of agricultural pur- suits, such as dairying, market gardening and fruit culture. Co-operation has also been proved of great use in the purchase by farmers of agricultural implements and fertilizers. Your committee found that co-operation offers a means for the labouring classes to purchase, under the most favourable terms, the necessaries of life and the articles required*for the exercise of any trade. It also provides a system by which the wage- earners can either build or acquire their own homes, by means of small loans from credit and savings societies. Your committee have given the credit and savings feature of the Bill their special consideration and have arrived at the conclusion that any general movement to foster co-operations destined to provide small loans and means of investment for people whose situation removes them from the sphere of action of our ordinary banks. In dealing, however, with this feature of the proposed measure, your committee have provided special clauses destined to surround the exercise of the credit and sav- ings power by these societies with all necessary guarantees to prevent any possible abuse. The interesting experiment made by Mr. Alphonse Desjardins with the institution known as 'La Caisse Populaire de Levis,' establishes clearly that this special form of co-operation is productive of the best results and can be carried out without risk, if under proper control. This control and supervision your committee have sought to ensure in the Bill. The witnesses heard by your committee are persons well versed in the co-operative movement since its inception ; their testimony bears out with singular unanimity the conclusion to which your committee have arrived, that the proposed Bill, as amended by your committee, if enacted, would be productive of the best results, and your com- mittee therefore recommend that the government take charge of the measure and have it passed. Your committee also report herewith their minutes of proceedings and evidence, and the exhibits filed, and recommend that the same be printed, with the exception of exhibits from Nos. 2 to 10, inclusive. All of which is respectively submitted, K. LEiMIEUX, Chairman. Vi INDUSTRIAL AND CO-OPERATIVE SOCIETIES % 7 EDWARD VII., A. 1907 MINUTES OF PROCEEDINGS. COMMITTEE ROOM, TUESDAY, December 18, 1906 The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met at 11 o'clock a.m., for organization. Present: Messieurs Aylesworth, Lemieux, Monk, Sinclair, Smith (Nanaimo), and Verville 6. The Committee being called to order, Or motion of Mr. Aylesworth, Mr. Lemieux was chosen chairman of the Committee. Mr. Monk explained the provisions of the Bill. On motion of Mr. Monk, it was Resolved, That a report be made to the Hous6 recommending : 1st, That the Com- mittee be empowered to send for persons, papers and records, and to examine witnesses under oath or affirmation; 2. That they be authorized to employ a shorthand writer to take down such evidence or proceedings as they deem necessary. On motion of Mr. Monk, it was Ordered, That Mr. Alphonse Desjardins, President-Manager of La Caisse Popu- laire de Levis, and Mr. W. L. Mackenzie King, M.A., LL.B., Deputy Minister of La- bour, and Editor of the Labour Gazette, be requested to attend the next meeting. The Committee then adjourned to the call of the chair. Attest, N. ROBIDOUX, Clerk of Committee. COMMITTEE ROOM, FRIDAY, February 8, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met at 10.30 a.m. Present: Messieurs Lemieux (in the chair), Bourassa, Monk, Sinclair, Smith (Nanaimo), Verville and White. 7. On motion of Mr. Monk, it was Resolved, That a report be made to the House recommending that the evidence taken by the Committee be printed day by day for the use of the Committee. Mr. Alphonse Desjardins was then called and examined in part by Mr. Monk and others. During his examination, the Constitution or By-laws of La Caisse Populaire de Levis, in the English and French versions, were filed and marked as Exhibits No. 1 and No. la, respectively. A statistical statement of the operations of the said Caisse was also filed and marked as Exhibit No. 2. Mr. Desjardins was by the Committee instructed to prepare as supplementary to his evidence a general statement based on the opinions of leading authorities on the subject of Co-operative Credit or Banking, and to submit the same as an addendum to the Minutes of Evidence. The Committee adjourned to the call of the chair. Attest, N. ROBIDOUX, Clerk of Committee. MINUTES OF PROCEEDINGS vii APPENDIX No. 3 COMMITTEE ROOM, WEDNESDAY, February 20, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met at 10.30 a.m. Present : Messieurs Lemieux (in the chair), Bourassa, Gervais, Monk, Yerville, Smith (Nanaimo), and White. 7. Committee resumed the examination of Mr. Desjardins. During his further examination, the following papers were filed and marked as Exhibit No. 3. Statement of the operations of La Caisse Populaire de St. Malo, from its organization up to February 13, 1907. Exhibit No. 4. Statement relating to La Caisse Populaire de St. Jo&eph de Levis, up to the 14th February, 1907. On motion of Mr. Monk, it was Resolved, That Prof. Shortt, of Queen's University, Kingston, be inA T ited to at- tend the next meeting. On motion of Mr. Smith (Nanaimo), it was Resolved, That Messrs. Ruddick and McNeill, officers of the Department of Agri- culture, Ottawa, be requested to attend the next meeting of the Committee. On motion of Mr. Monk, it was Resolved, That Mr. F. O. Dugas, M.P., be invited to attend the next meeting. The Committee then adjourned until Friday, 22nd instant. / Attest, N. KOBIDOUX, Clerk of Committee. COMMITTEE KOOM, FRIDAY, February 22, 1907. The Special Committee to whom was referred Bill No. 2, an Act respecting the Industrial and Co-operative Societies, met at 10.30 a.m. Present: Messieurs Lemieux (in the chair), Bourassa, Monk, Smith (Nanaimo), Verville and White 6. Mr. F. 0. Dugas, M.P., attended as per invitation, and was examined by Mr. Monk and others. Mr. J. A. Kuddick, Dairy and Cold Stora-ge Commissioner, was called, and ex- amined by Mr. Monk and others, and discharged from further attendance. During his examination, a report on Co-operative Agriculture and Rural Condi- tions in Denmark (prepared by the members of a deputation sent to the country by the Department of Agriculture and Technical Instruction for Ireland), was filed and marked as Exhibit No. 5. Prof. Adams Shortt, of Queen's University, Kingston, was called and examined in part by the Chairman and others. Resolved, That in order to give Prof, Shortt an opportunity to read the by-laws of La Caisse Populaire de Levis f his examination be now discontinued, to be resumed on Friday, 1st March next. The Committee then adjourned to the call of the chair. Attest, N. ROBIDOUX, Clerk of Committee. Viii INDUSTRIAL AND ^CO-OPERATIVE SOCIETIES^ 7 EDWARD VII., A. 1907 COMMITTEE ROOM, FRIDAY, March 1, 1907. The Special Committee to whom was referred Bill No. 2, an Act respecting Indus- irial and Co-operative Societies, met at 11 a.m. Present : Messieurs Lemieux (in the chair), Monk, Sinclair, Smith (Nanaimo), Verville and White 6. Professor Shortt's examination was resumed and concluded. On motion of Mr. Monk, it was Resolved, That a report be made to the House recommending that leave he granted to the Committee to sit while the House is in session. Mr. A. McNeill, chief of the Fruit Division, Department of Agriculture, was called and examined, and discharged from further attendance. The Chairman expressed his desire to hear the evidence of some hankers on the sections of the bill relating to banking. The Committee then adjourned to the call of the chair. Attest, N. ROBIDOUX, Cleric of Committee. COMMITTEE ROOM, THURSDAY, March 7, 1907. The Special Committee to whom was referred the Bill No. 2, an Act respecting Industrial and Co-operative Societies, met at 10.30 a.m. Present : Messieurs Lemieux (in ,the chair), Monk, Smith (Nanaimo), Verville, and White 5. Messrs. E. M. Trowern, of Toronto; H. C. Ellis, of Ottawa; and J. A. Beaudry, of Montreal, respectively, secretary, 2nd vice-president, and treasurer of the Retail Merchants' Association of Canada, were present at their own request, and allowed to be heard. Leave was granted to Mr. Trowern to send to the Clerk of the Committee copy of certain letters, &c., referred to in his evidence as unfavourable to the principle of co- operation, said letters to be filed and marked as exhibits (No. 9 and No. 10). Mr. W. L. Mackenzie King, C.M.G., Deputy Minister of Labour, was then called and examined in part. During his examination, a publication on ' Co-operation in New England/ by Edward W. Bemis, Ph. D., was filed and marked as Exhibit No. 6. Tha Committee then adjourned until Tuesday next, 12th instant. Attest, N. ROBIDOUX, Clerk of Committee. COMMITTEE ROOM, TUESDAY, March 12, 1907. The Special Committee to whom was referred Bill No. 2, an Act respecting In- dustrial and Co-operative Societies, met at 10.30 a.m. Present : Messieurs Lemieux (in the chair), Monk, Smith (Nanaimo), Verville, and White 5. Mr. King's examination resumed and concluded. MINUTES OF PROCEEDINGS % ix APPENDIX No. 3 During his examination, a copy of The Canadian Co-operator, a monthly maga- zine published in Whitby, Ont, was filed and marked as Exhibit No. 7. Also, witness submitted for the use of the Committee, reports from the Work- men's Store Company, Limited, Dominion, C.B.; the British Canadian Co-operative Society, Limited, Sydney, N.S. ; and Glace Bay Co-operative Society, Limited; and also, the Eules and Regulations of the Guelph Co-operative Association, Limited. Mr. Monk offered Mr. King the thanks of the Committee for his researches and studies on the subject-matter covered by the provisions of the Bill under consideration. Mr. Monk read a letter from Mr. Pierre Jay, of Boston, addressed to Mr. Al- phonse Desjardins, on the subject of co-operation. (Said letter to be filed and to form part of the appendix to the Minutes of Evidence.) The Committee then adjourned to the call of the chair. Attest, N. ROBIDOUX, Clerk of Committee. COMMITTEE ROOM, TUESDAY, March 26, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met at 12 o'clock (noon). Present: Messieurs Lemieux (in the chair), Monk, Sinclair, Smith (Nanaimo), Verville and White. Also, Senators and other Members of Parliament. His Excellency the Governor General, at the special request of the Chairman, was pleased to attend this meeting of the Committee in his capacity as President of the International Co-operative Alliance, and gave his views on the subject of co- operation : its birth, growth and success in the Mother Country and on the Continent. At the conclusion of His Excellency's address, on motion of Mr. Monk, seconded by Mr. Smith (Nanaimo), it was Resolved, That this Committee desires to place on record its indebtedness to Earl Grey, and tender His Excellency its thanks for his attendance this morning, and for the valuable information he has given this Committee, as well as for his deep interest in the cause of co-operation. An article by Henry Vivian, M.P., on ' Co-partnership in Housing/ published in the Garden, Suburbs, Villages and Homes, was submitted by His Excellency and marked as Exhibit No. 8. After which His Excellency retired. The Committee then adjourned to the call of the chair. Attest, N. ROBIDOUX, Cleric of Committee. COMMITTEE ROOM, FRIDAY, April 5, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met at 4 o'clock p.m., Mr. Lemieux in the chair. On invitation, Mr. George H. Perley, M.P., was pleased to attend this meeting of the Committee, and gave his views on the provisions of the Bill under consideration. X INDUSTRIAL AND CO-OPERATIVE SOCIETIES s 7 EDWARD VII., A. 1907 Mr. Alphonse Desjardins was again heard. The Committee adjourned to the call of the chair. Attest, K KOBIDOUX, Clerk of Committee. COMMITTEE ROOM, THURSDAY, April 11, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting In- dustrial and Co-operative Societies, met. Present : Messrs. Lemieux (in the chair), Monk, Sinclair, Smith (Nanaimo), Verville and White. G. The committee proceeded to the consideration of the Bill, and amended several sections thereof. On motion of Mr. Monk, it was : Resolved, That the title of the Bill be changed to that of 'An Act respecting Co-operation/ Ordered, That the Bill as amended be reprinted and reported to the House. The committee then adjourned sine die. Attest, N. EOBIDOUX, Cleric of Committee. LIST OF WITNESSES APPENDIX No. 3 WITNESSES. Page. Beaudry, J. A 67 Desjardins, A 3, 106 Dugas, F. O., M.P 31 Ellis, H. C 67 His Excellency the Governor General 89 King, W. L. Mackenzie, C.M.G. 70 McNeill, A 48 Perley, George H., M.P 105 Kuddick, J. A 32 Shortt, Prof. A 38 Trowern, E. M 53 XJi INDUSTRIAL AND CO-OPERATIVE SOCIETIES % 7 EDWARD VII., A. 1907 LIST OF EXHIBITS. No. 1. Constitution or By-laws of La Caisse Populaire de Levis, (English version). (Printed.} N. 10. Constitution or By-laws of La Caisse Populaire de Levis (French version). (Not printed.) Nc. 2. Statistical statement of the operations of La Caisse Populaire de Levis. (Not printed.) No. 3. Statistical statement of the operations of La Caisse Populaire de St. Malo. (Not printed.) No. 4. Statistical statement of the operations of La Caisse Populaire de St. Joseph de Levis. (Not printed.) No. 5. Report on Co-operative Agriculture and Rural Conditions in Denmark. (Not printed.) No. 6. Publication on ' Co-operation in New England/ by Edward W. Bemis, Ph. D. (Not printed.) No. 7. Copy of The Canadian Co-operator, a monthly magazine published in Whitby, Ontario. (Not printed.) No. 8. Copy of Garden, Suburbs, Villages and Homes, containing an article by Henry Vivian, M.P., on ' Co-partnership in Housing.' (Not printed.) No. 9. Prize letter on co-operation written by a Clackmannanshire woman in reply to a series of letters in favour of co-operation published in the Weekly Scotchman, January 12, 1907. (Not printed.) No. 10. A Farmer's Bitter Complaint, published in the Weekly Scotchman, January 12, 1907. (Not printed.) 7 EDWARD VII. APPENDIX No. 3 A. 1907 MINUTES OF EVIDENCE 7 EDWARD VII. APPENDIX No. 3 A. 1907 MINUTES OF EVIDENCE. HOUSE OP COMMONS, COMMITTEE KOOM No. 30, FRIDAY, February 8, 1907. The Special Committee to whom was referred Bill No. 2, an Act respecting Indus- trial and Co-operative Societies, met at 10.30 a.m., Mr. Lemieux in the Chair. Mr. MONK. Whatever may be the fate of this Bill, I think the information we are going to gather will be valuable not only to ourselves but to the House and to the public generally. I therefore move that we report to the House that the evidence taken from day to day be printed day by day for the use of the Committee. The CHAIRMAN. Was that not understood ? Mr. MONK. There is no record. We simply obtained authority to employ a steno- grapher. The CHAIRMAN. It is moved by Mr. Monk that a report be made to the House that the evidence taken day by day be printed day by day for the use of the Com- mittee. Is it the pleasure of the Committee to adopt this motion ? Carried. Mr. ALPHONSE DESJARDINS, president and manager of ' La Caisse Populaire de Levis/ was called and examined. By Mr. Monk : Q. Mr. Desjardins, do you prefer to give your evidence in English ? A. Yes, I shall do my best. .Q. Mr. Desjardins, have you had any occasion to study co-operative societies as they exist in Europe? A. Yes, sir, I have been studying that question for the last ten or twelve years. I have devoted much of my time and attention to it, and, more- over, I have had the advantage for the last ten years of having an interchange of cor- respondence with almost all the leaders of that movement in Europe, in Italy, Ger- many, Austria, France, Belgium and England. I have thereby gathered a large stock of information which is not even to be had in the books published up to date. Those details are more of a particular nature of the movement in each country, but still at the same time give a fair idea of the possibilities of that movement. Q. Would you state to the Committee briefly the advantages which have resulted from the adoption of the co-operative system in 'Some of those countries, in Germany, Italy, France, England and Belgium, and perhaps, also, what kind of co-operative as- sociations exist at the present time particularly in those different countries ? A. Well, as far as the first part of your question is concerned I can only give a very general outline of the advantages derived from co-operation. One of them is an es- sential feature of it. The poor people are thereby brought up to an astonishing level of education so far as economics are concerned. They know what is the nature of capital. They know its relation to the rest of the social life and thereby a good deal of prejudice is abated. Now when you go down into the details of it, one of the great advantages of co-operation is that it teaches people how to do their own business instead of relying upon a middleman. If you go further into the details and take, for instance, the banking aspect of the movement you will find that it has taught people 3 4 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7> EDWARD VII., A. 1907 the great advantages of economy, thrift, saving, and above all, it has 'taught them the value of the cents, the small savings. If you ask the poor man to save money, he will tell you : ' Well, my friend, I would but I have no money.' When you go further and you ask him, ' Have you not cents sometimes in your pockets/ he will reply * of course, but that is not money/ and, therefore, having but cents in his pockets he never thinks of saving, because it is not worth while. On the other hand, if you teach him that saving can be exercised with great advantage upon those few cents, you will create in a very short time a very large capital, because it is not units that count here but the quantity of units. By Mr. Bourassa : Q. And if they find a use for the cents it will induce them to put more aside ? A. Exactly. The first move is the most difficult one to secure. The moment you have succeeded in convincing a man that he must put something aside he says, * that is a dollar, I never thought I could save that much ' ; then two dollars and then five dol- lars, and so on. By the Chairman : Q. You spoke of saving. What is the difference between penny banks and bank, under your system? A. Well, the penny banks do not -go in for the same class of loans. Of course, the penny bank does not usually exist except in some large centre or large town. Q. Not in rural communities? A. Hardly in rural communities because the penny bank, is usually fostered by some philanthropist who is the head of some finan- cial institution and they hope in starting a bank in an urban district to have the ad- vantage of the savings thereby made put. in their institution. Or perhaps they prefer the credit or prestige derived from the institution, while in a rural community or small town that is not sufficient to enable them to found a bank on those lines. By Mr. Bourassa: Q. What is the radical difference between a penny bank and a co-operative bank? Is it that the penny bank simply accepts the people's deposits of their money, while with you they are enabled to make savings of small amounts and acquire shares ? A. In the penny bank the administration is carried out by a certain number of gentle- men and the depositors have no control, but in the co-operative bank all have an in- terest and have the advantage of knowing what is the situation. By Mr. Smith (Nanaimo) : Q. In the penny bank the depositors have no control? A. No control in the matter. It may turn out right or wrong, or they may lose their money Q. It is the intention in your bill to provide both for a bank and for a co-operative society ? A. Yes. Q. It is not proposed to have the bank connected with the co-operative society ? A. No, I think the best way will be to have distinct societies so far, because you may have three or four co-operative societies, and if the administration is in the hands of a few it may be conducive to bad results. For instance, you may take example in Mentone. I suppose the gentlemen here, if they have not been to the south of France, know- something about it. I have not been there, but I have a good friend there who tells me that some people are members of seven different co-ojperative associations, each having different objects, one banking, one a distributing association, another for wine selling, and another for a restaurant. Instead of joining up these associations into one with one administration, every association has its own officers, and by this means you get a larger number of officers to advise as to the management. Q. In this way you get a distinct system for distribution. In England it was a con- dition that the distributive societies should be formed into the wholesale productive societies, and then take hold of the banking system. How are you going to establish the bank unless you first teach the people to save? MINUTES OF EVIDENCE 5 APPENDIX No. 3 By the Chairman : Q. I think, Mr. Smith, it is now time for Mr. Desjardins to explain the features of his system. You might state how you organize it, on what basis it is organized, and what are 'the principles of the organization ? A. (The witness), I was just going to complete my answer so far as the second part of the question was concerned, that is the employment of these funds by a co-operative credit society. Anyone in the association who is in need of money can go to the society with the usual security, not very exacting in these cases, and obtain a loan. By Mr. Smith (Nanaimv) : Q. He can get a loan equal to his deposits ? A. More than that. The credit of the man is based upon his honesty. That is a startling principle, I suppose in finance. But we have made the experiment successfully. By the Chairman : Q. How do you make the selection of the honest borrower? A. Well, first of all< the society is not like a joint stock company in which a man buys a share and has all the rights of a shareholder. In these associations, a man cannot, be a shareholder, until he has first been admitted by ballot, and so we know something of him before- hand and whether he is honest or not. We will take him on his present honesty, or what may be described as his promise of future honesty. If he is admitted on his future honesty, of course it will take some time before he can come for a loan. The first choice or election is a guarantee, and we know each other the more so because the association only covers a small area, a small district where everyone is known, and it is strange how far we are known to each other. Q. When a man comes for a loan it is a question for the committee who super- vise these loans to see that it is not granted unless every possible information has been obtained, and if the information is not satisfactory then no loan is made ? A. Yes, but, as I said just now, we know each other pretty well. By Mr. Bourassa : Q. The whole basis of the safety of making these loans is the limitation of the territory covered by the association? A. Certainly, to a large extent. By the Chairman : Q. How did you proceed to organize a co-operative society ? Mr. MONK. Mr. Lemieux, I was just coming to that. You have been connected with only one kind of these associations, and have made a trial and experiment on that particular method. Perhaps, as the chairman says, you will tell how it works out in practice ? The CHAIRMAN. I think a few years ago they started an association in Montreal, what is called co-operative stores, but in this case it is a banking society. Mr. SINCLAIR. We have co-operative stores in Nova Scotia. Mr. MONK. I understand, Mr. Desjardins, that the association with which you are connected is particularly with regard to banking and credit. The WITNESS. As I said just now, while the principle of co-operation is a very good one, in a new country like Canada it might not answer the purpose so well as in an old country or in other countries in Europe, and to make the experiment complete and make myself sure of it I resolved to start one of these co-operative credit associa- tions. By t\e Chairman: Q. Where? A. At Levis. Q. What would be the population of Levis? A. About 7,000. We included a 1584r-2 6 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 rural part in order to have the experiment among 1 the rural as well as the urban people. Mr. MONK. Do you mean you took in the suburbs? A. The outside parishes formed part years ago of the old parish, but these were exclusively rural, so we had a fair ground for experiment among both kinds of population, urban as well as rural. All the leaders of the movement agree that co-operative banking is the very basis of the whole movement, although I may say in England circumstances were such that it was distributive co-operation that was started first. The CHAIRMAN. What is the nature of the population at Levis; is it industrial? A. Railways form the main industry there, and then we have two or three foundries or machine or other shops, and a large shoe factory. There are many labourers work- ing at the port and elsewhere. Mr. SINCLAIR. What is your experience as to the stability of those saving banks? It seems one of the greatest difficulties in my mind to make them safe. I have known a few of them in Nova Scotia, and invariably they have gone to pieces in the course of a few years by bad management. That is small saving banks in little towns that were started under some special local Act, a special Act, by which some few men were per- mitted to start a small saving bank. Mr. BOURASSA. But was it on the co-operative basis that nobody could make any transaction in the matter of credit with the bank unless he was a shareholder of the association ? Mr. SINCLAIR. No, I do not think so. Mr. BOURASSA. You see that is the basic difference, that nobody can transact banking unless he is a member of the association, and then it is limited as to area. The CHAIRMAN. And the transaction is always supervised by a committee. The WITNESS. We started with about fifty spirited citizens. Of course, we had no law whatever. It was upon the voluntary system. We, of course, adopted by-laws. The CHAIRMAN. Would you kindly file them? (By-laws produced as Exhibit No. 1.) The CHAIRMAN. Would you file the English copy as well ? The WITNESS. Yes. We adopted those by-laws, which were genuine co-operative by-laws, and we began business. We organized on the 6th December, 1900, and we started to collect a few cents. By the 25th January following, our first semi-monthly statement showed an asset of $242. By Mr. Smith (Nanaimo): Q. Have you any of your financial statements ? A. Yes. By Mr. Monk: Q. You said you had $242 ? A. On the 21st January last, the total assets were $48,775.67. By the Chairman: Q. After six years of operation? A. After six years of operation. By Mr. Smith (Nanaimo): Q. Was that banking pure an3 simple? A. Yes, pure and simple. By the Chairman: Q. Explain the system now? A. We had to create a capital. In doing so we had to conform to the wishes of those who were called upon to furnish the capital, as we addressed ourselves to very poor folks. We had to offer them what I call the variable capital or capital withdrawable at any time. If you go to a poor man and say, f You MINUTES OF EVIDENCE 7 APPENDIX No. 3 put a dollar there and you will never see it again unless you sell your share and go about in the street and try to sell it/ he will never take such a share. We had, there- fore, to remember that. By the Chairman: Q. Did you fix a limit to that capital at first? A. No. There is no limit fixed, because the capital is variable. By Mr. Sinclair: Q. Would they take it back without notice ? A. In the by-laws we stated that the notice was thirty days, to be exacted as a measure of safety. We have never exacted notice. Whenever some one called, we said, ' Here is your money.' It was the best way to create confidence. We are like the bank, we give the money whenever people wish to have it. You will see that the withdrawals of share capital have not amounted to very much after all. We have received $44,957.15 of shares. En passant, I may say that those shares have been fixed according to the financial position of our future and present members at $5. I would advise $2 shares, because the people feel some- what proud in saying, ' I have so many shares/ Never mind the amount of shares. One share of $200 would not be the same thing as 100 $2 shares. You must conform to the wishes of the members. There is no harm done, and it pleases them. I have studied a good deal that part of human nature, and I think it is the best way. There is no harm done and there is nothing to be lost. Out of the $44,957 we have collected as share instalment, we have paid back only $10,159.88 in six years, leaving a balance of $34,797.27. At first a great deal of movement had been gone through, but it is now getting steadier. Of course, at first the people had some confusion as to the idea of capital, and were making the mistake of paying in a little for shares which should have been paid in purely as savings, because they wanted it again to buy their winter provisions or pay the rent or something of that kind. When they wanted to do this, I told them not to take up shares, but to deposit a small savings outside the shares, and we now have $9,933.66 apart from the shares. We have received altogether $28,519.95, and we have paid back $18,586.29, leaving a balance, as I said, of $9,933. That is en- tirely savings apart from shares. By Mr. Bourassa: Q. In the last six months ? A. No, that is in the whole period. By Mr. Monk : Q. What was the amount of the loans you made during this period ? A. The total amount of the loans is $199,527.33, of which there has been repaid $167,610.05, leaving, in outstanding loans, well guaranteed, $31,917.28. Out of this almost $200,000 that we have loaned, and I hope I may be pardoned if I speak with certain pride, we have never lost one cent. By Mr. Sinclair : Q. What do you do with the surplus? A. We had in hand $16,794.81; that money is put into the bank. Q. At three per cent ? A. Yes. By the Chairman : Q. You were saying that you received $200,000 in deposits ? A. No, I was speak- ing of the loans made. Q. With the money of the shares as well as the small savings? A. The whole, of course. By Mr. Bourassa : Q. That was the general movement of the funds? A. Yes. 15842* 8 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 By Mr. Monk : Q. As a matter of fact, speaking generally in all cases of societies of this charac- ter, making small loans they have very small losses, if any? A. So much so that I received a letter a year and a half ago from Luigi Luzzatti, the Chairman of the Popular Banks Association of Italy, in which he stated to me that in forty-one years of experience with the 800 popular banks they have in Italy, the loss amounted to one- tenth of a cent, for forty-one years, out of each 2,000 francs loan. Q. That, I suppose, is due to the extreme caution with which these loans are made ? A. The main security is the fact that the association is working within a small area and that everybody knows each other. A second security is that everybody is interested by being a shareholder. By Mr. Smith (Nanaimo) : Q. Anyone receiving a loan must get someone to act as security ? A. They must have two endorsers, if required. Q. And those must be members of the society ? A. Members of the society as well. By Mr. Sinclair : Q. What security do you take from the manager? A. I am the manager of this particular association, and I have to give a bond with an insurance company for $3,000. Of course the council of administration could have exacted a higher bond, and the premium is paid by the association itself. By Mr. Bourassa : Q. What is the average yearly expenditure ? A. Well, that is a very delicate point you are now* touching upon. By the Chairman : , Q. Of course, it depends upon circumstances ? A. As I stated, I have started the association and I understood that it was of the greatest interest to make it a suc- cess, that the money should be kept always ready and whatever would be the outcome of it, we ought to be in a position to take the money out of the till and give it back to those who ask us for it. I thought it also my first duty, as I had no law to protect me, to be very careful about expenses. I took upon myself to do the whole work of the association without indemnity or salary. The office was kept in my own house, the book- keeping was done by myself, and whenever I was absent from town, by one of my family. All the members used to come to my place for the payment of their instal- ments or shares, or to do any other transaction they had with the society. That is the explanation why the expenses have been so low. My every desire was to create a re- serve fund as rapidly as possible in order to be prepared against any possible mishap, damage, or injury that might have happened, and we have succeeded because our re- serve fund amounts to $3,341. That explains the fact that the whole of the expenses during the six years of operation have only been $543.57, including printing. The CHAIRMAN. How much ? WITNESS. $543.57. You may tell me perhaps that we cannot expect everybody to do the same amount of personal work in order to make the saving. The CHAIRMAN. No. WITNESS. Surely not. But I was labouring under very peculiar circumstances. We were the pioneers in that kind *of institution and upon the devotedness and zeal which we displayed depended the success of it. The only succesful associations at the time I could point to were those in Europe, and people could tell me they are so far away that we cannot go there to see by ourselves. We can succeed better when one in this country is established and we can point out that one and say, ' You can go there and find out for yourself whether it can be as successful in your locality as it has been in Levis.' MINUTES OF EVIDENCE 9 APPENDIX No. 3 The CHAIRMAN. How many shareholders have you in that society at Levis? WITNESS. About 900. I say about, because people are going in and out. The CHAIRMAN. The average membership is 900 ? WITNESS. Ye. The CHAIRMAN. How. did you organize it at first ? There is of course a board of directors ? WITNESS. When the shareholders had subscribed shares, we made the best choice we could. Then we had a general meeting and at that general meeting the board of administration, composed of nine members, was elected by the shareholders. Another committee, called the Commission de Credit, or Credit Commission, a special body to deal only with the loans, was appointed by the general meeting as well, and then a third body, the Commission of Surveillance, or you might say auditors, were appointed, not "by the board, but by the general meeting, by the shareholders themselves. The CHAIRMAN. So that you have three distinct boards? WITNESS. Exactly. The auditors are really the general meeting sitting en per- manence alongside the officers they have chosen and the board have no control over them. They can tell the board, ' You can do this or that if you dare ; but if you do, we shall suspend operations for the time being and report to the general meeting/ They have the right to inspect the books day and night and go to them when they please. In my own experience I can say that they have always done their duty. They would tell me: 'Mr. Desjardins, we want to see your cash.' ' There you have every- thing, here is the cash book, the bank book, the loan book, and make the addition and see whether it is correct or not.' Mr. BOURASSA. So that that board which has the responsibility to the shareholders of looking after the good administration, is not at all under the authority of the credit board ? WITNESS. Not at all. It has more authority than the board of administration and more authority than the board of credit. The CHAIRMAN. It is a striking difference between the general by-laws that are made by banking institutions where the auditors are selected by the board of directors without referring to the shareholders? Mr. MONK. These institutions on the whole are much more democratic. The CHAIRMAN. Therefore, the shareholders have three boards, a board of direc- tors, the credit commission, and the auditors ? WITNESS. Yes. Of course the word ' auditor ' does not exactly convey the mean- ing I wish to convey. Mr. MONK. A board of censors ? Mr. BOURASSA. The power of an auditor is simply to look over the work and re- port on it. The CHAIRMAN. What further authority have they? Can they suspend the board of directors or suspend operations? * WITNESS. To even the president they can say, ' Go and sit down there and be quiet. We shall rule this society until we have a general meeting.' The CHAIRMAN. How many members are there on each board? WITNESS. On the board of administration there are nine, on the commission of credit there are four, elected directly by the general meeting, while the chairman of the association is a member exofficio, and then the auditors or supervisors number three. Mr. SINCLAIR. Do they get any money ? WITNESS. No. It is desired that no officer get remuneration except the manager. The CHAIRMAN. By whom is the selection of general manager made ? 10 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 WITNESS. By the board of administrators. Mr. MONK. From what experience you have had in those six years in Levis, do you think that it is possible to find in our provinces sufficient men capable of filling positions such as those you have indicated in localities similar to yours. You have a board of administrators, you have commissaires and you have a board of censors or audi- tors. Now, in towns like St. Hyacinthe or Three Kivers and similar localities, would thlere not be some difficulty in finding capable men to fill positions of that kind in similar organizations? WITNESS. It is a matter of education. It will require perhaps a good deal of pro- paganda before we convince people who are accustomed to work for money to under- take such duties, but on the other hand there are competent men enough and devoted citizens enough to fill those places anywhere. Thus in our humblest parishes we find that idea. It is a fact that our municipal as well as school organizations in the pro- vince of Quebec have been working admirably for the last fifty years. We have found the material for that administration which is a very complicated one, a very useful one, and at the same time a very responsible one, but we have municipal councillors handling thousands, perhaps millions of dollars a year, without a cent of indemnity. Mr. MONK. And not a cent wasted? WITNESS. And no defalcations. And those school commissions that we have in the provinces are working very well. Of course what I call the social authorities would have to come and give help, such as professional men, our priests, our leading citizens. Mr. SMITH (Nanaimo). All voluntary service? WITNESS. Of course. It is like our municipal government and school govern- ment. It is a voluntary system looking only to the official honour. The CHAIRMAN. Suppose, I am a shareholder, and suppose I have $100 in this society and I am in need of say $200 or $300, what will be the process to obtain money from the society? I am a shareholder and I want to get more than my share in a loan, how am I to obtain that? What is the process or the procedure? Mr. BOURASSA. Don't you think that we might go into the question and ask Mr. Desjardins in what way the money gathered by the society is employed? WITNESS. The amount of money that a member has in the society has a very restricted bearing upon his credit. We consider first the conditions on which he is to pay and his intention of paying the instalment. It is, as I stated, the honesty of the individual that is considered, his savings or assets are not the first considera- tion. For instance, if one of you gentlemen came for a loan of $300.00, the appli- cation will come before the board of credit, who will decide whether or not to make the loan. But first of all, the general meeting fixed annually the amount to be loaned to any one individual, be it $300.00 or $500.00. By the Chairman: Q. I don't quite catch the point? Do you say that each application comes before the general meeting? A. No, the maximum amount of a loan to any one in- dividual is fixed by the general meeting. By Mr. Bourassa: Q. Not the loan? -A. No. Q. Is the total amount to be loaned fixed annually by the general meeting? A. No, because it depends upon the funds. By the Chairman: Q. Do you mean to say that each year the general meeting will fix the extent of the loan that can be made to each individual member? Mr. MONK. No, but to any individual. MINUTES OF EVIDENCE 11 APPENDIX No. 3 By the Chairman: Q. Why is a limit put upon the amount of the loan? A. It is to prevent the centralization of the funds in the hands of one or two. You must not forget that everybody in the association has the right to obtain a loan provided he gives good security, and if you loan all the money to one or two individuals, that limits the power of the society to help other members during the year. We consider that it is better for the association that small loans should be made, and we prefer them to larger loans. Suppose the manager of such a bank had ten individuals coming to him and saying, we should like to have a loan of $10.00, that would mean $100.00, but suppose the eleventh came and said that he would like a loan of $100.00, it would be better for the society if it should have to choose, to make the loan of $10.00 to ten individuals than to loan $100.00 to one individual. By the Chairman: Q. The smaller the amount A. The larger the number of people bene- fited. By Mr. Monk: Q. Before loaning the money what is the procedure? A. In order to prevent delay, I generally draw up a list and submit it to the board. Suppose, for instance, that Mr. Lemieux wants a loan, I would ask the board what amount of credit they would allow Mr. Lemieux. Will you limit him to $100, or will you go up to $1,000, our present maximum, and the board would answer, ' Well, hardly that, without an endorser/ or they would consent upon, his good character, and so I would know the amount of credit they will give; I would therefore be able to say yes or no when the application is made. By the Chairman: Q. Would you want an endorser for that? A. Yes, in cases of large loans. When a man comes to my office and says I want $1,000 or $500, I say all right, and I give him the cheque and take his note. I have no need to consult the board, because I have already done so. By the Chairman: Q. You do not find borrowers asking for advances not offering security besides their own? A. Of course, we do very often loan upon personal security, because we know the borrower. Mr. Smith (Nanaimo): Q. What is the amount of interest on deposit? A. Well, we have not dared to go further than three per cent. Q. Equal to the average banks? A. Yes. By Mr. Monk: Q. Suppose a carpenter or a blacksmith wanting to purchase tools for his trade, comes to you and wants $40 or $50. As a rule do you require endorsers? A. Often we would not, because if a man is honest we should know it. By the Chairman: Q. That is the great advantage of this small area. You know who is an honest man? By Mr. Monk: Q. Suppose a seamstress wanted to buy a sewing machine, would you rely on your knowledge of her honesty and means ? A. Yes, and if we have not received a reference 12 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 of a good character of the candidate then we don't like to put somebody in trouble, and we would say, ' we cannot do it unless a member well known to the board is willing or insists upon becoming security.' By the Chairman: Q. Before you go on with your explanations, do the banks in the locality where you reside advance such small loans even on endorsed notes? Suppose a seamstress, as Mr. Monk was saying, wanted to buy a sewing machine, could she go to the Banque Nationale or the Bank of British North America for a small loan of $20 or $25 ? In your experience have these banks made loans of such small amounts ? A. Never ; they do for amounts of $25 or $50, but they charge the same amount of interest as for a loan of $100. That is what I have been told often. Mr. Smith (Nanaimo): Q. Do you deposit your surplus with private banks? A. Oh, yes, the surplus money is deposited. Q. You make nothing of the surplus except the interest given by the private bank ? A. On those funds, yes, but you must recollect that we have $3,400 of a reserve fund of our own, which goes to supplement our gross earnings. Q. Where do you put that reserve? A. That is used in the general business of the association. By the Chairman: Q. What is the average interest you receive from loans? A. Six and five-eighths per cent last year. Q. That is not very high? A. The question of interest is so closely connected with the question of the repayment of the loan that if the committee will allow me, I will approach that question, because no question has been put to me that has drawn my attention to it, and it is a very interesting one. Mr. Monk was supposing just now a labourer coming to the society and asking a loan of $30 to buy tools with. In the ordinary banks a loan may be made for three or even four months, and then at the end of four months the borrower will have to pay at least fifty per cent of the loan, lie may perhaps have a chance of renewing for two months, but at the end of the two months it must be paid in full. Some borrower will come to us and borrow $50 and) will reimburse that $50 as he wishes. I wish to make that point very clear because it seems a very wide authority to give to the borrower. He makes his own conditions and says he will reimburse $3, $4 a month and so on. If these conditions are accepted, we generally hold him close to his engagement: you have promised to give that sum and you shall give it, according to your own conditions. Mr. SMITH (Nanaimo). According to the man's own conditions. WITNESS. Yes. Now take the question of interest. While charging an interest for the whole time we grant the borrower as much interest on his reimbursements as he pays. Mr. SMITH (Nanaimo). So that he is encouraged to pay it off as quickly as pos- sible? WITNESS. Yes. The quicker he pays the better it is for himself. A loan which, comes to my mind is this one. Last spring two young men, brothers, one an employee in a shoe factory, another a carpenter, came to me and said, ' We are offered a great advantage. We are considering buying a house at very easy conditions. We hope one day or another to marry and settle down; we would like to be alongside one another, and this house is divided into two lodgings that would suit us. The only difficulty in the whole situation is that we have not the $200 that the vendor asks us as a cash pay- MINUTES OF EVIDENCE 13 APPENDIX No. 3 ment on the purchase price, so we come to you and ask if the society will be ready to loan us those $200. We have no real security to give, the house standing as security for the seller. We cannot offer anything but our good reputation, and perhaps our mother may come in and give her signature for us as well.' ' Well,' I said, ' I will sub- mit the question to the board of credit; come to-morrow and I will let you know the answer.' The next day the question was submitted to the board and agreed to unani- mously, and that is a point to which I wish to draw your attention. The board must be unanimous on every loan. If one says 'no,' the loan is not made. The board in this case was as usual unanimous, and the loan was made. I said to the young men, 1 Here are the $200,' the conditions of reimbursement fixed being $20 a month, or ten months in all. By the Chairman: Q. You can accept partial reimbursements? A. Yes, that is a great advantage to the borrower. I have had reimbursements of fifty cents a we^k of a sum of $20. But to return to the case I was speaking of, the loan was made, the house was bought, the house is now paying itself by the rent, and the $200 were reimbursed in less than eight months. The young men were so completelp pleased and so hopeful that they worked almost day and night to clear that off. By Mr. Verville: Q. How much interest do you charge? A. The interest is fixed by the board of administration. In fixing the interest we had to take into consideration the general state of the market, the general rate that is charged for high protected loans, and we had at the same time to see, not to imitate them, what is done at usury shops, and, lastly, the legitimate remuneration to be granted to the thrifty who provides the funds. Taking these three elements together we fixed the rates. By the Chairman: Q. Are there any shavers^ at Levis ? A. There were two or three before, but God knows where they are now. By Mr. Bourassa: Q. It is an effective way of stopping usurers? A. Upon a loan the borrower is charged seven per cent interest if he chooses to pay the interest in advance, or eight per cent when he wants the right of reimbursing either partially or the whole amount before the time expires. We charge then only for the time that has elapsed one per cent more, assuring the borrower the advantage of reimbursing when he pleases. Q. Of course you do not exact the eight per cent on the total amount of the loan, they get the benefit of the interest on any instalment they make? A. Exactly. I will give here a practical instance. A member of our society came about the month of July last and said : ' I expected a payment due to me of $150, I counted upon it to pay my insurance premium on my life, but the man who owes me the money has not come ; the premium must be paid to-morrow, I have not a red cent in my possession and I want you to let me have $150 in order to pay my premium when due. What are the conditions ? ' I said, ' You have the option of either paying seven per cent in advance or eight per cent, with the privilege of paying then only for the time you keep the money or any part thereof.' He said to me, ' I prefer the eight per cent rate because you might have the money to-morrow or to-night.' He came the next morning and he got $150, after I had submitted his demand to the board of credit. Five days after- wards he came back and he had the money from the man who owed him. He had paid his premium and said, ' Now, according to the condition, how much do I owe you ? ' I think it was twenty-three or twenty-four cents for the whole amount. Mr. BOURASSA. If he had discounted the note at the bank the interest would have run thirty days at least 14 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7i EDWARD VII., A. 1907 By Mr. Monk: Q. Is it not a fact that there is a great deal more usury than people think, and that one of the effects of these institutions is to stamp it out effectually. Has that not been the result of your observation everywhere? A. Everywhere. A very typical case was the one quoted in the history of co-operative credit in Alsace Lorraine. After the Franco-Prussian war in 1870, Jews by thousands were following the German armies into French territory and exercising their peculiar industry. After the war was over they settled down into these provinces annexed by Prussia and there began, according to the historian, almost every kind of usury. They might even take mortgages upon farm animals, cows, and so on. They had the whole peasantry in their hands and they exacted a general rate of interest of 100 to 150 per cent. With regard to the second part of your question as to usury, I can say that a gentleman I knew called upon a certain rural usurer and borrowed $100, I think it was. There was an old caleche in front of the usurer's place, and he told the carter who drove him that he had bought it twenty-five times for $30 each time, being a condition of each loan. The amount of interest charged by the usurer was the usual rate, 6 per cent, but having to pay for the old caleche that made the rate on the loan something like 125 to 150 per cent. Mr. Smith (Nanaimo): Q. If you educate the people to save money by a system of co-operative banking; as you have in Levis and do not establish a co-operative distributing society, you will be making your bank 'an agency to enable the distributors to exact high prices from, the people? A. I don't think so. Q. Should you not commence with the distributive societies and then establish the bank? Mr. LEMIEUX. The Bill provides for that. Mr. SMITH (Nanaimo). t)o you not think that the only way to help the people, is to co-operate first in the sale of the necessities of life ?. Mr. MONK. Do you mean to say that a co-operative system of distribution would be sufficient without the bank? Mr. SMITH (Nanaimo). No, but they must go together. If you establish a bank and teach the people to make small savings and do not have a co-operative distributive association and leave the sale of the necessities of life to the competitive plan, the competitive distributors will take advantage of the people having more money. By; having the distributive co-operative association in the operation of this business you will have a method of utilizing your profits in the bank. You can build houses, build-* ings for your business and become producers. Mr. MONK. At the same time, don't you think that, as was said in the beginning, if the carpenter required tools or the seamstress a sewing machine, the co-operative bank would be able to make them a loan. Until they can get the money to start with 1 they cannot do their business. Mr. SMITH (Nanaimo). You can assist them in selling the machine or the tools* at a cheaper rate than they would be sold under the competitive plan, and still clear a profit on the transaction. By the Chairman: Q. Well, Mr. Desjardins, you say that these societies should be confined to a small area. Do you limit that area to a town or village or could you extend it as far as the boundaries of a county, for instance? A. It might be beneficial to take the boun- dary of the electoral district, except perhaps in the Northwest where the boundaries are very large. But, generally speaking, the idea of these associations is to take the municipal boundaries as the basis, or, if you like it better, the parish. You have there a population gathered together for municipal purposes or for religious purposes, and if you can create an economic organization as well, it will be in the public interest. MINUTES OF EVIDENCE 15 APPENDIX No. 3 In all groups of population three wants exist: the religious one, the material one of the collectivity, and, lastly, the economic need. In our present organization the church looks after the religious interests, the municipality looks after public health and so on, but there exists no organization to satisfy the economic needs. If those other organiza- tions and other enterprising individuals wanted money they would be in a position to have it from the local society, and those who want to be thrifty would have a place where they could go. If the municipality wanted money it could go to the bank within the parish. Q. The shareholders would know everything with regard to the other organiza- tions in the parish, and be able to say if a loan is properly made to such an associa- tion ? Mr. Smith (Nanaimo): Q. What is the idea of prescribing that these societies should be connected witft the electoral district? A. We must have some division. By the Chairman: Q. An arbitrary line? A. We have to draw a line somewhere. Mr. MONK. In the case of census returns and other returns we generally take the electoral district for the purpose of convenience. Mr. SMITH. Yes, but in a case of a co-operative society or bank, boundaries are unnecessary. What would it matter whether a~man lived in the country or Toronto. If a poor man in Toronto wants to comply with the conditions of your society, is your credit refused? Mr. BOURASSA. The basis of security would disappear, for the whole basis of secur- ity is the fact that those people live together and are so closely connected. Mr. SMITH (Nanaimo). But we are discussing a different system as dissociated from co-operative stores. If you are selling goods to the community you would not object to a person coming from another town. Mr. MONK. This condition in the Act is limited to the system of banking:.' A society carrying on the business of banking shall not operate outside of the electoral dictrict where it has its head office.' The CHAIRMAN. There will be as many societies as there are municipalities? WITNESS. Yes, there is no monopoly; there can be no monopoly, for there could be more than one society per municipality. Mr. MONK. The electoral district is chosen as being an area within which there would always be found to exist that knowledge which Mr. Desjardins has referred to as the basis of credit, namely, having the man to whom they loan under their eye. Mr. BOURASSA. We may take that up as we come to the section. Mr. SMITH (Nanaimo). You have a distributive society, you are selling goods to your poor people and you have a man in Montreal, say, where there is no co-operative store and he wants to join your society. Would you admit him? WITNESS. There would then be no risk as in the banking system. Mr. SMITH (Nanaimo). He buys your goods and he deposits his dividend in your co-operative society. By-and-by he has savings as a consequence of buying in your re- tail society and he says : l Why cannot I do business with your bank ? 7 That is the difficulty which I am up against. Mr. MONK. In that case they are not carrying on business of banking. It is sep- arate. WITNESS. The store cannot do banking at the same time. There may be the same members, the same individuals in both. Mr. BOURASSA. You can organize a co-operative society for banking and you can organize another co-operative society for distribution. 16 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 Mr. SMITH (Nanaimo). But if you do a trading business 7 EDWARD VII., A. 1907 societies and various home industries' societies, making altogether at the end of 1906, 891 co-operative societies affiliated with the Irish Agricultural Organization Society, with a total membership of 90,000 members and with a trade turnover for 1905 of $10,000,000. ' The registration of 32 new banks during 1905 is sufficient evidence that this form of co-operative society still appeals to the Irish farmer.' The I.A.O.S. was started by Sir Horace Plunkett 18 years ago on the basis of self- help, and on the foundation of self-help has been gradually built up an edifice of gov- ernment assistance. The government are co-operating with the I.A.O.S. in its endeavour to help the Irish farmers to help themselves. The report of the I.A.O.S. for the year ending June 30, 1906, shows that the government granted the I.A.O.S. $10,000 to help them to meet the expenses of organizing and supervising credit societies, and the subsidies contri- buted by the government to the I.A.O.S. to help it in its general work during the year ending February 28, 1907, were $18,500. Now, I also learned from the report of this society most recently issued, that in Cape Colony one of their own men trained in Ireland has been appointed agricultural co-operation commissioner, with power to spend $43,000 on agricultural organizations and $750,000 in co-operative loans. It has been recognized in South Africa that the chief want in that country was the impossibility of borrowing money required for profitable agricultural operations, and that the best way of meeting this want was through co-operative credit. In the same way it has been found in Ireland that the money placed at the dis- posal of selected credit societies for loan at 3 per cent, by the Department of Agri- culture, has been a great boon to the credit societies, which had difficulty in raising sufficient capital either from deposits or from the joint stock banks on overdraft. At the same time it should be stated that the joint stock banks have shown a very friendly spirit in their treatment of co-operative credit societies, several bank managers having put themselves to personal inconvenience to attend meetings, and having shown a willing readiness to facilitate credit societies in various ways. The society reports that there is a constantly increasing confidence in the safety of the banks. It has been found I am quoting from the society's report in many districts where no other form of agricultural co-operation can otherwise obtain a foothold, co- operative credit is frequently welcome. This is partly due to the simplicity of the system and the effective aid which it gives to farmers in a comparatively short time, and it is due also to the fact that local prejudice amongst dealers is not so often directed against this form of co-operative enterprise as against poultry societies or agricultural societies. Indeed, some of the banks have been assisted in their forma- tion by local merchants, who would have resisted any other type of co-operative society. It is satisfactory to be able to state that wherever investigations have been made, as to the utility of the loans to the individual borrowers, the results have fully realized the most sanguine expectations, and profits of 20 to 50 per cent, or even more, have been proved to accrue to the farmers adopting this form of credit. Another advantage, which might be called a by-product arising from the working of the banks, is the in- creased interest taken, not only in the system itself, but in agricultural co-operation generally, by the committees. Men who hardly know each other except by name, and virtually never met, who were sundered by religious or political differences, meeting on bank committees, have helped each other in their work as farmers, and by discuss- ing practical questions of local or general interest, have helped themselves and their parish by the diffusion of useful knowledge, the increase of practical improvements and the spirit and practice of good fellowship. Co-operative societies are being formed in Ireland for the fattening of poultry, for the sale of eggs, for bacon curing, tobacco curing and for the handling od0 iBax, with the result that the improvement effected in the co-operative handling of flax and MINUTES OF EVIDENCE 97 APPENDIX No. 3 the improved marketing facilities, have undoubtedly been the means of considerably increasing the area under flax, 1905-06. The dairy societies have been, as in Denmark, of the greatest 'help to the Irish farmers. Dairy societies which had not hitherto engaged in agricultural trade ai*e now recognizing the advantages derivable from the co-operative purchase of manures, seeds, &c., and are evincing quite a keen interest in the consolidation of business and federation for that purpose with the I.A.O.S. In districts where co-operative credit societies have been established in contiguity, if not in actual connection, with agricultural societies, it has been found that the bearing which one has on the other, undoubtedly tends to the usefulness and pros- perity of both societies. Further it is interesting to note that thf> Irish Agricultural Wholesale Society was the first body in Ireland to guarantee the percentage of purity and germination of farm seeds, and has thus been able to raise the standard of seeds to the great advantage of the farmers : and by reducing the cost of artificial manures has increased their use enormously, while the action of the Departement of Agriculture has led to a more intelligent application of fertilisers. It may also be of interest to mention that the I.A.O.S. have arranged a scheme which enables members to obtain compensation for workmen's accidents by small premium of 3 per servant : and to insure their live stock from death by accident or disease for 4 per cent annum. I should like to quote one sentence from the speech of Sir Horace Plunkett at the last Annual Meeting of the I. A. O. S. : 'The provision of funds from public sources must be regarded as temporary. I make two exceptions. Co-operative credit a matter of vital concern to all farmers who intend to improve their system of agriculture, as they will have to adopt more tillage, with its corollary of winter dairying, and also live stock insurance, both of which at a later stage, I think, might be directly organized by a Government depart- ment, with a view to the gradual development of a scheme which will justify the fi- nancing of farmers' credit associations with public moneys on the lines followed in Germany and elsewhere, abroad. 7 FRANCE. I now quote a few extracts from an article on agricultural credit in France in the New Zealand Farmers' Stock and Station Journal, which was reproduced in a Rhodesian agricultural journal, which I read here in Ottawa. The paper in question points out that the earliest attempt at the establishment of a co-operative credit bank was made in 1884, when a society was formed at Poligny with a capital of $4,000, of which one-half was paid up. Notwithstanding its small capital, this society was very successful, but its example was followed in only a very few instances. In 1893, rural banks on the Raiffeisen system began to be introduced, and in 1901 there were 543 of these associations federated in a central society. Based on the principle of the unlimited liability of the members for the debts of the society, it was found that bankers would grant advances to societies of this kind without any guarantee, so that little capital was required. The safety of the money lent to members was ensured by confining each society within very small limits, usually a parish, where the circumstances and charac- ter of the members are easily known. In order to encourage agricultural credit, a law was passed in March, 1899, which provides for advances from state funds, free of interest, to direct or regional banks (Caisses regionales). These banks are unions or federations of local banks affiliated banks, their capital being derived from the State grants and from shares subscribed by the local banks. The total sum available for this purpose was $8,000,000 with an annual addition of not less than $400,000. The advances are now regulated by a committee, according to a decree dated llth April 1905. 98 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 As a result of this law there existed at the end of 1903, 41 district banks to which the State had advanced about $1,750,000 and the paid-up capital of which waa $615,000. The local co-operative banks affiliated to them numbered 616, with a paid up capital of about $300,000. By the beginning of 1905 the advances by the State had advanced to $3,220,000. The growth of these banks during the three years will be seen from the following table : AFFILIATED Local Banks. Year. District Banks. Number. Member?. Loans Granted. 1901 21 300 7,998 $ 1,085 000 1902 37 456 22,167 2,860,000 1903 41 616 28,204 4,500 000 There is considerable variation in the constitution of these local societies, very few restrictions being made by law on the form a local society must take, but the system favoured by the Department of Agriculture is based, not on the Raiffeisen principle of unlimited liability but on co-operation with limited liability, such as is proposed by your Bill, the subscriptions of persons interested, together with the assis- tance afforded by the State, enabling loans to be made by the district bank either directly out of capital, or by re-discounting bills through the Bank of France. The following is a summary of the scheme recommended by the department. The members of a local co-operative bank must be drawn from the members of an agricultural association, but the nujmber required for its foundation need not exceed seven. It is not, indeed, desired that these local banks should embrace a large num- ber of members, as it is important that the character and financial condition of the members should be well known. They, therefore, usually confine their operations to one parish, but are affiliated to a district bank which may include the whole of a department. Each of the members must subscribe for one share varying from $3 to $6. The local bank devotes an important part of its resources to taking shares in a district bank ; indeed, commonly, the whole amount subscribed by members is used in this way. The capital of a district bank, however, need not be very large ; for instance, if it amounted to $10,000 that sum would enable it to obtain at the com- mencement an advance from the state of $20,000, which might afterwards be increased to $40,000, as the law permits the state to advance four times the paid-up capital. CO-OPERATION IN THE UNITED KINGDOM. Mr. Smith is no doubt wondering when I am going to come to England. He is an old co-operator and knows all about the system there. Well, at the end of 1905 there were 2,215,873 registered co-operators in the United Kingdom. If you multiply this figure by three and a half, which is a fair multiplier, as, though all the mem- bers are not heads of families the majority are, you get a total number of nearly eight millions, which is more than one-sixth of the population of the United Kingdom. The present turnover of the co-operative societies of the United Kingdom is over $500,000,000 a year, on which they realize a ten per cent profit of over $50,000,000 and of which they devote to education nearly $500,000 a year. These high figures are steadily increasing year by year. These figures are hardly appreciated by people in MINUTES OF EVIDENCE 99 APPENDIX No. 3 England. The co-operative movement there is far and away the biggest industrial enterprise. It started on the basis of associations such as you propose to make legal in this Bill. The total sales in the forty-two years, 1862 to 1904, 1,432,776,536, over $7,000,- 000,000. The total profits in the forty-two years, 1862 to 1903, 134,381,205, over $670,- 000,000. Now this vast organization which is destined to exercise a greater influence on the life of England year by year, is the practical result of the enjoyment by the Deo- plte of England of the rights which the Bill now before your parliament wishes to confer on the people of Canada. When this Bill becomes an Act the example of co- operation in the United Kingdom and on the continent of Europe will be of great as- sistance to Canada. You must not, however, expect to be able to avoid all mistakes, and you must not be discouraged by failures. Failures confronted with spirit be- come the steps to success. It is well to remember that the great and successful co- operative movement of England has been founded on failures. Robert Owen is the father of co-operation and every one of the 700 societies which owed their birth to the enthusiasm which he created for the principle of co-operation, have one after another disappeared. Various reasons have been assigned for their failure incompetent managers, dishonest managers, the abandonment of the ready- money system, dependence on the rich for assistance instead of on self -support ; but the real cause of the failure is to be found in the want of character and education among the people that Owen hoped to benefit. He wished to thrust improvement on them from the top, instead of allowing it to grow up from below. The failure of his societies was owing to the fact that the movement originated with him and not with the men themselves. The movement, which grew out of the Rochdale store started in 1844, by the self- denial of a few workmen who resolved to do for themselves what Owen had tried 50 years before to do for them, on the other hand, has shown astonishing results. Distributive societies exist to-day in various parts of Great Britain. After pay- ing all expenses and interests at the rate of from 4 to 5 per cent, on invested capital, the profits are usually divided among the members in proportion to their purchases at the store. In a few societies where an enlightened view is taken of the relation be- tween capital and labour, the employees are allowed to participate in the profits with the consumers at the store, 1 of wage ranking for as much in the division as 1 of purchases. The organization is essentially democratic, all members being equal. The store is essentially the business of the people themselves. It belongs to them, and is managed by them. The object of its existence is to serve them and to promote their well being. The Store Committee becomes in those communities, where enlightened opinions pre- vail, a centre of social effort, a sort of civic church, the organized communion of Ihe best men in each locality for the promotion of comfortable living and right and jus- tice. The degree of the committee's influence necessarily depends on the education and ideals of the members of the society. Owen, recognizing that progress is largely a matter of education, appropriated a large proportion of his profits to educational work. I have not the sum which the co-operative societies voted last year ; they amounted to, I believe, a charge of about 3d. in the pound upon the profits distri- buted. The question is now being debated whether they should not tax themselves a little higher through their societies for the promotion of the common good. The chief advantages secured to England by this co-operative organization of trade and industry, which the legalised establishment of similar organizations in Canada, in accordance with the provisions of this Bill, will bring within reach of Canada are: 1. $50,000,000 saved annually by the co-operators of the United Kingdom, and this amount steadily growing year by year. 100 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 2. Training in business habits of the committee men who are entrusted with the administration of the local societies, through which this saving is effected in 1900 the number of committee men amounted to 20,000. 3. Effect on character of the 8,000,000 population influenced by their association with this huge oiganization and the responsibilities attaching to it. 4. Security provided against trusts run in the interests of a few capitalists. I would have you reflect on the security which the development of co-operative methods offers against the tyranny of trusts and combines. There is no guarantee that the power of a trust, or a combine, will not be used against the general wellbeing of both producers and consumers. The co-operative movement provides a safeguard against this danger of a value proportionate to its strength. The Co-operative Con- sumers' Organization, which is in itself a trust in the interests of consumers, is pre- vented by law from becoming a close co-operation with limited membership. It therefore cannot be captured by a capitalist trust. Further, no man may own more than 200 shares. Every member has an equal vote. Its command of millions of capital enables it to make large purchases in every part of the world. This power and their possession of a market gives the great Co-operative Consumers' Organization a unique position. Mr. Verville, in one of his questions, referred to his hope that co-operation might make it easier for working men to build their own homes. Perhaps one of the most interesting features in the co-operation movement in England at the present time is the work which is being done by Co-partnership Tenant Societies in London and elsewhere. I would refer you to a prospectus of the Ealing Tenants, Limited, of which the chairman is Mr. Henry Vivian, M.P. for Birkenhead, and who lias all his life been a strenuous and effective worker in the cause of co- operation. IJis object has been to promote the co-operative ownership and administra- tion of suitable building estates in the suburbs of London, by methods which, while avoiding the dangers that too frequently accompany the individual ownerships of houses and speculative building devoid of public spirit, harmonize the interest of tenant and investor by an equitable use of the profit arising from the increase of values and the careful use of the property. The methods are briefly as follows: ' To acquire, or erect, substantially-built houses, provided with good sanitary and other arrangements for the convenience of tenants. ' To let the society's houses at ordinary rents ; to pay a moderate rate of interest on capital; and to divide the surplus profits, after providing for expenses, repairs, depreciation, &c., amoung the tenant members, in proportion to the rents paid by them. ' Each tenant member's share of profits is credited to him in shares instead of being paid in cash. 1 The advantage to the tenant member is obvious ; in that he is entitled out of the profits to receive a dividend on the rent paid by him during that period. The investing shareholder, it is admitted, does not receive an excessive return on his capital. But the system also operates to the advantage of the capitalist. { A. The greater the surplus profits the greater the security for the regular payment of interest on capital. Now, it is in the interest of the tenant members, who receive the surplus profits, to make those profits as large as possible, e.g., by taking care of the property and thus lessening the expenditure on repairs ; by helping to find tenants for empty houses; by the punctual payment of rent. Experience confirms this. ' B. The share capital of the tenant member affords a fund upon which the society can, if necessary, draw in order to pay any arrears of rent. Loss by arrears of rent is therefore practically impossible. i It is contended that while the system confers great benefit 011 the tenant share- holders, it affords by that very fact an exceptional security to the capitalist shareholder. 1 This system must not be confounded with that of an ordinary building society MINUTES OF EVIDENCE. . . . 101 APPENDIX No. 3 which has advantages of its own. In the latter the occupying member makes himself liable to the society for the purchase money. If he leaves the neighbourhood the house may be a burden on his hands. t A tenant member of this society may remain a tenant member only, however large his holding in the society. If he leaves the neighbourhood, he can sell his shares probably more readily than a house, or perhaps continue to hold them and receive the interest regularly. ' It is further claimed for this system that, in principle, it solves the question of the " unearned increment " ; for all the gain under this head does not go to the share- holders as such, or to the individual tenants in the improving locality, but by swelling the surplus profits, it necessarily benefits all the tenant members of the society, as tenant members, in the shape of increased dividends on their rentals.' That in these societies a workman can obtain practically all the economic ad- vantages which would arise from the ownership of his own house, will be gathered from the following: * Capital for the society is obtained at a rate below which the individual could not possibly borrow to buy his own home; he would almost certainly pay interest higher by half per cent to one per cent. After interest on capital has been paid, and the usual fixed charges have been met, any surplus profit is placed to the credit of the ten- ant shareholders as shares in the society, in proportion to the rents they have paid, until the value of the house is acquired in shares, after which the profit may be with- drawn in cash. It seems clear that if the preliminary expenses, such as legal and survey fees, and the interest on capital to be paid out of the revenue from rent, are less under this system, and if the tenant shareholder pays as rent what under the other system would go as repayment in instalments, then the margin or surplus which can go to- wards building up the capital fund must be greater. By taking as his security, scrip for shares in an association of tenant owners, instead of a deed of a particular site and house, the tenant averages the risk of removal with his co-partners in the ten- ancy of the estate. The value of his accumulated savings is therefore kept up, and can be transferred, if desired, without the waste that accompanies the trans- fer of a deed. The results of a workman's thrift are in this way made mobile as well as his labour; and this is important if he is to get the maximum economic result from his knowledge and industry. Further, tenants having a substantial share in the capital of the society administering the property, are interested not only in securing good results whilst they are tenants, but also, after they cease to be tenants, in keeping up the permanent value of their capital. The tenant of a house belonging to an association of tenant owners such as I have described enjoys advantages which individual house owners do not; for instance: On the Ealing estate a small institute has been built; there is a library, a choral society, cricket and other clubs, and a discussion class, and debates are organized by the tenant shareholders, and lectures are arranged from time to time. This society, after meeting all fixed charges and paying 5 per cent on shares and 4 per cent on loan stock, realized a fair profit on the working of the last half-year ; but it has been decided to carry this to the reserve fund for the present. The society has purchased an adjoin- ing estate, which will enable a much larger number of houses to be erected, bringing the total up to about three hundred. The tenant's position in such a society is as follows: 1. He gets a house at a rental which, if accommodation and other things are com- pared, is not higher and is probably less than he would have to pay elsewhere. 2. He can invest in the society of which he is a tenant any savings he finds it possible to make out of his earnings, at 5 per cent. 3. Should values go up, the tenant gets the benefit either by way of a dividend on his rent or by paying a rental which is below the market value. 4. He secures practically all surplus profit after the fixed charges have been met. 15848 102 IXDUSTItlAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 5. The tenants, as a whole, can relieve themselves of dependence on outside capital altogether, by acquiring through investment or by accumulated capital, the value of the property. 6. The capital for building his house is provided at a cheaper rate than it could be obtained on any system that is commercially sound. By gradjual process, therefore, it lies with the tenants to transfer the ownership from non-tenant shareholders, who take the main risk to begin with, to the tenant shareholders who, it is hoped, may become the ultimate owners. This follows) the policy adopted by Godin with his employees in the co-partnership iron foundry at Guise. It will be seen that the division of risks is a varying one as between the non- tenant shareholders and the tenant shareholders. The proportion of non-tenants* capital is large to begin with, declining as the* tenant shareholders' proportion grows. The following figures show the progress of this movement up to date: Estab- lished. Number of Members. Capital at Start. Present Share Capital. Present Amount of Loans, Stocks and Loans. Amount of Mortgages Present CostValue of Mortgages Reserve Fund. Tenant Co-opera tors,Ltd. Baling Tenants, Ltd 1888 1901 320 166 500 300 5,286 8,653 9,030 22,658 11,893 21,523 28,680 52,451 3,60(T 510 1903 46 700 939 3 164 6 600 10 950 Anchor Tenants Lei- cester Ltd. 1903 300 Garden City Tenants Ltd 1905 93 600 5 114 24 922 3 410 33,000 Hindhead Ltd 1905 300 f Promley Tenants 1906 Bournville Tenants Ltd 1906 Old ham Garden Suburb Tenants Ltd 1906 Manchester Tenants Ltd 1906 As will be seen from the above illustration, a tenant owners' society, to administer a garden village, can make a start with very small resources. Why should they not multiply rapidly? Cheap transit is now enabling the people to travel quickly from the centre of our towns into the suburbs; tenant societies might well be started to share in the development of these suburbs, buy land or lease the same from munici- palities, and thus raise the whole tone of speculative building. The system upon which such societies are worked is a comparatively simple one, and, with a central organiza- tion to mould societies and guide them in their infancy, their number should rapidly increase. Those desiring to establish societies in their own districts can obtain information as to the best way to do so from Miss Gurney, 22 Ked Lion Square, London, W.C. I have put this information before this committee owing to a remark of Mr. Verville leading me to suppose that the problem of how to house the workmen of the rising towns of Canada is one which is very naturally engaging his attention. Mr. MONK, Your Excellency, Mr. Chairman and Gentlemen: I am sure I am voicing the feelings of members of this committee and of the House who are here present in stating that we are extremely grateful to His Excellency for the very valuable information he has laid before the committee this morning. The members of the committee have brought to the consideration of this important measure a great deal of industry and have sought to procure all the information available by hearing from competent experts who have made a life study of the subject. Could we expect to get the testimony, if I may use that expression, of His Excellency, it would be most valuable to us, because we knew that long before Earl Grey came to Canada he had MINUTES OF EVIDENCE 103 APPENDIX No. 3 made of this subject a special study, and had done a great deal in England to promote the co-operative movement there. Tkrough the gpod offices of our chairman, we suc- ceeded in obtaining the presence of His Excellency, and I venture to say that the enlightenment he has given the committee will be most useful to its members in pre- paring their report and also to the House of Commons itself when it comes to study the measure. I am glad to avail myself of this opportunity to state that this is not the first occasion upon which His Excellency, since he has come to Canada, has mani- fested the warmest interest in everything that could in any way further and advance the welfare of the people and the progress of the country. Of this he has given mani- fest evidence this morning again. It is indeed an admirable illustration of the gran- deur and elasticity of our political institutions that we should thus have the advan- tage of seeing one occupying eucK a high position lay aside for a moment his official character and come as a private citizen to give us the benefit of his great experience of the advantages of the co-operative movement which he acquired while in 'England. I would like to say, Mr. Chairman, that I listened with particular interest to the suggestion made by His Excellency concerning the unlimited liability character of the Raiffeisen banks and the opinion he brought to us of Mr. Wolff, one of the most eminent experts in England, on this subject that unlimited liability is desirable. Of course, as we all know, and as His Excellency knows, there is an objection amongst Anglo-Saxon people and those whoso institutions are modelled after the Anglo-Saxon plan, to unlimited liability. Nevertheless, we will ,when we come to study the details of the Bill, put in practice as far as possible, the -suggestion which, upon that point, has been made to us by His Excellency. Without wishing to detain any longer His Excellency or this committee, I beg to move, Sir, seconded by my hon. friend Mr. Smith: ' That this committee desires to place on record its indebtedness to Earl Grey, and tenders His Excellency its thanks for his attendance this morning, and for the valuable information he has given this committee, as well as for his deep interest in the cause of co-operation.' Mr. SMITH. As a member of the select committee appointed to consider this Bill, I have very much pleasure in seconding the motion of my honourable friend, Mr. Monk. His Excellency has been kind enough to make a personal reference to myself, as having experience of the operation of the principle of co-operation in England. I desire to say that that is so; and one of the most important influences, as I consider, in my training and experience, has emanated almost absolutely and entirely from the operation of that principle in the Motherland. I regard the prin- ciple of the co-operative movemerit in Canada as important from one standpoint prin- cipally, and that is in its disposal of the present condition of credit in this country. I came to Canada fifteen years ago this may be a personal reference, but I desire to illustrate the point I am making a poor man, having brought up a family without the expenditure of single pound on the credit system. I never once in my life pur- chased an article that I did not pay the money for, but when I came to Canada, I found, in British Columbia, in Vancouver Island, that the credit system was preva- lent everywhere. Under this system of credit the miners of Vancouver Island had their monthly payments mortgaged before they would get them. In my opinion, Mr. Chairman, the operation of the credit system, as a business principle, in any country to such an extent is a serious detriment to the mental and moral improvemenit, and the elevation of its citizens. If there is one thing more than another which the co- operative principle teaches, it is that a man should be thrifty; it teaches him to economize even with his small earnings, and the importance of paying for everything he purchases. I am surprised to find that, seventy years after the enactment of a law providing for the incorporation of co-operative societies in England, we are discus- sing the importance of the same principle in Canada. Perhaps in the consideration of this subject by the committee I have been a little impatient, because I thought that 104 INDUSTRIAL AND CO-OPERATIVE SOCIETIES after seventy years of experience in England it ought to be easy enough for us to adopt the principle in this country right away. The principle of the legislation is that of purely voluntary action. There is nothing compulsory about the principle at all: it simply provides that the individual members of the State shall have the right to co-operate for 'their own interests, to minister to their ow-n wants, and to economize their own finances. I am very much pleased that His Excellency, with so many years of experience, has favoured the committee with an address this morning, and I have no doubt that what he has said to us will help the members of this committee and of the House of Commons to further the passage of this wise and necessary legislation. Doubtless, His Excellency's address will have far-reaching effects on the country. THE CHAIRMAN YOUR EXCELLENCY AND GENTLEMEN. I wish once again to thank you for your attendance this morning. This committee has sat exactly one hour. We began the proceedings within a very few minutes after twelve and it is now five minutes past one. I think it will be the concensus of opinion that this has been one of the most, if not the most, interesting sittings that this committee or this parlia- ment has had since the beginning of the session. We have had the first citizen of the land, His Majesty 7 representative, coming before us to give us the benefit of his advice on a system which he has himself promoted on the other side of the water. It is a pleasure for us to see that the work which has been accomplished in England by the Owens, the Wolffs', the Greys', and in Italy by the Luzzatis, has been taken up in Canada by the humble Hansard reporter of the House of Commons, Mr. Desjardins. Your Excellency, Mr. Desjardins has taken up your work in Canada. He has been an enthusiast and to-day he is probably the proudest man in Canada, because after years and years of perseverance and effort, his work, so humble at the beginning, is now com- mended by the highest authority in this Canada of ours. Let me thank you, in Mr. Desjardins' name for the kind words you have used in speaking of his work. To show the interest of His Excellency in the work of co-operation, I hold in my hand a book which His Excellency got the other day at La Caisse Populaire de Levis, which he visited as a subscriber on the occasion described by him. I thank you again, on behalf of Mr. Desjardins who cannot speak, on behalf of this committee, and I can assure Your Excellency that by your address this morning and by the facts which you have submitted to this committee, you have helped considerably to promote the passage of the desired legislation. The resolution was then put and carried by acclamation. In reply His Excellency said : I can assure you that if I have been of the slightest use to you in your deliberations upon the Bill which is now before the House of Com- mons, it will afford me the greatest possible pleasure. I am glad to have had the op- portunity of meeting you and I heartily wish you success in your efforts to enact this measure. I hope if it does pass it will be conducive to the prosperity and the well- being of all parts of the Dominion. The committee adjourned. HOUSE OF COMMONS, ROOM 62, FRIDAY, April 5, 1907. The Special Committee to whom was referred Bill No. 2, An Act respecting Industrial and Co-operative Societies, met here at 4 p.m., Hon. Rodolphe Lemieux, chairman, presiding. MINUTES OF EVIDENCE 105 APPENDIX No. 3 Mr. G. H. PERLEY, M.P., called by consent, and examined. By the Chairman: Q. You are in the lumber business? A. Yes. Q. And you are a bank director? A. I am a director of the Bank of Ottawa. Q. And you are a director in more than one bank? A. Only in one. Q. Have you examined this proposed legislation, and if so, will you state to the committee whether, in your opinion, it will be beneficial to the people at large, and if the provisions of the Bill meet with your approval ? A. I may say, Mr. Chairman, that I am here as an individual to give my own personal views on the matter, as the mover of this Bill, Mr. Monk spoke to me several times about it. I read the Bill over care- fully for the purpose of seeing whether I could make any suggestions to better it. I may say that I have no experience myself of the co-operative movement, but it is quite apparent from the evidence which nas been given before this committee that it has been productive of great good in many countries. I listened the other day very carefully to what His Excellency had ,to say, and there seems to be no doubt that this movement would be for the benefit of the people of this country. I simply wish to criticise a few details of the Bill and more particularly that part which has reference to the carrying on of a banking business. Q. What part of the Bill is that? A. The clauses with reference to the banking business. By Mr. Sinclair: Q. What clauses ? A. I will refer to them later on in detail. Eirst let me say that I notice subsection a of section 3 provides : (Reads) : t No member other than a joint stock company, an agricultural association existing under the laws of Canada or some province thereof, or a municipal body, shall have or claim any interest in the shares of the society to an amount exceeding five hundred dollars.' Now, I certainly think it would Be a great mistake to draw a distinction between an individual and a com}- pany in connection with the amount of stock that they are free to hold. If the amount is to be limited to five hundred dollars it should apply to everybody. On looking over tne Bill I see no provision that there shall be only one vote for each shareholder. I understand that is one of the basic principles of co-operation and I certainly think it ought to be put in the Bill that each shareholder should have one vote, irrespective of the amount of his holding of shares. If that were provided for, the limit as to the number of dollars which a person could put in might be struck out and it would be permitted that a person or corporation should have as many shares as they wished. There are provisions -or the winding up of the society in subsection e of section 33. It seems to me that this clause ought to be more carefully drawn. Under it, if the society has a certain reserve, any shareholder can withdraw at any time and he shall not be at all liable in connection with the company from the moment of his with- drawal. Now, under this clause the directors of a society which was in trouble, even although it nominally showed a reserve to the legal amount provided for, could with- draw at one moment's notice and thereby relieve themselves from every possible liability in connection with their shares. Now, that certainly is not fair or proper and might lead to great abuses. Another thing I notice is that the Companies' Act, as I understand it, would not apply to a society of this kind. Now, supposing the directors were to declare dividends that had not been earned. Are they to be punished for that under this Bill? Mr. MONK. It is the general meeting, in the case of co-operative societies, that declares the dividend. Mr. PERLEY. It is declared at the general meeting? Mr. MONK. Yes, sir. The CHAIRMAN. Is^ there a clause to that effect? . 106 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 Mr. DESJARDINS. It may be incorporated in the by-laws and in the law as well. The board has only the right to make recommendations to do this or do that, but they have no power at all to declare a dividend. For instance, I have no power at all as a director or as a member of the board of administration of La Caisse Populaire to declare a dividend. Our people at Levis were calling upon me for a dividend, but the board had no power to declare one. I said to them, ' You must wait, I cannot, as manager, pay one cent because I am not authorized by the general meeting.' Mr. PERLEY. I see no provision about dividends at all. From that I infer that the board would Have power to declare them. Mr. DESJARDINS. No. Mr. PERLEY. There should be some clause providing as to how the dividends are to be declared. Mr. SINCLAIR. Look at subsection a of section 33, ' No person, society or company who, or which, has ceased to be a member for one year or upwards, prior to the com- mencement of the winding up shall be liable to contribute/ Mr. PERLEY. Yes, that is perfectly plain. But subsection f the same sort, realizing that it is wanted, vaguely grasping the merit of the principle, and seeking to apply it in an empiric way which has thus far led to significant but not very perfect results. We have need, insufficient employment, insufficiently cultivated land, insufficiently used op- portunities. To find money, poor people go to the pawnbroker and the usurer.' Imperfect Organizations of the same Tcind Existing Prove the Want. f But they have advanced beyond that, as has been already shown. They form slate clubs, loan societies, funding clubs, self-help societies in Edinburgh they have a "People's Bank," which, established mainly to enable workingmen to purchase their own houses, engages largely in real People's Bank business, mere lending, in a way rather different from that here indicated, but with very good results, never thus far, as Mr. Lochhead stated at the last co-operative congress, losing a penny, though the sum lent out both in building and personal loans amounted at New Year to 34,485. In none of these societies, which are, in point of fact, embryo co-operative credit banks, is any difficulty experienced in applying the methods necessary for co-operative banking, such as the provision of personal security by sureties. Sureties are readily forthcom- ing. Also, the experience of such institutions shows that here, as elsewhere, what are called "the poor," are in truth the best repayers. In the best organized of these societies the losses are practically nil, though the members be recruited from the poorest sections of the working classes, liable to frequent want of employment.' The possibilities of Co-operative Banking in this Country. 1 Here is a producing factor of the greatest power, the most beneficient action, the most educating effect, placed within our reach, the banking of that " greatest banker of the world," as Jules Simon has called him, " who trades with the mite of the poor." The upper strata of our social fabric may, as has been stated, be "over-banked." However, thus far no banking shaft has yet been sent down into the lower levels to tap the inexhaustible deposits of gold mingled with productive labour which lie hidden there. Into that depth, where possibly lie concealed materials for wealth, greater and more enduring by far than those which surface digging has yielded us, only co-operative banks can penetrate, to bring up their treasures and make them available to be utilized for the public good. That would undoubtedly be a great public benefit. Probably the time will come when we shall wonder how we ever man- aged to maintain our social well-being, to carry on our national economy without co- 122 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 operative banks, just as we are inclined to wonder now how we ever could do without railways, without tramways, without those many modern inventions which make available for " the million " the benefits of civilization, the use of which was long hopelessly barred to them, at a time when travelling, study, comfort, were the mon- opolies of the rich, as banking still is their monopoly to-day. Give " the million " that productive power which is to be found in the command of working capital, and though the millenium cannot be expected to arrive at once in consequence, there can be no doubt that many of our social and economic troubles will be mitigated, if not wholly relieved, that employment is likely to become more steady, and more remunerative, comforts are likely to become more attainable, therefore contentment may be expected to become more general and pauperism more circumscribed than they are now.' In confirmation of the views here expressed by Mr. Wolff, we have a much higher authority in the opinion of a committee of the British House of Commons. After an inquiry of a minute character upon money lending in the United Kingdom, held in 1897 and 1898, and after having heard the evidence of several experts on co-operative credit societies, the committee said in their report upon this point: ' Your committee are impressed with the extreme usefulness of these institutions, and they are of opinion that they meet a real want, especially in agricultural districts.' Mr. J. E. Dodge, Statistician of the United States Department of Agriculture, testifies as follows in a letter written in 1892, to the Hon. J. M. Eusk, Secretary of Agriculture : ' These people's banks have a success that justifies their existence, as they fill a virtual vacuum in banking opportunities for the agricultural and industrial classes. Perhaps equally needed in this country are such facilities for self-help, through small savings which are the basis of small loans to those who are by their circumstances practically excluded from the ordinary credits of the banks. Possibly such facilities here may lead to self-reliance, financial co-operation and thrift, and thus improve the condition of large numbers of men of limited means and isolated position who are now beyond the present stimulus to enterprise and economy of existing savings banks, national banks, trust companies, and other financial institutions/' In his very valuable book, ' People's Banks,' Mr. Henry W. Wolff, speaking of England, writes on page 368 : ' Else, what keeps our pawnshops and our usurers busy ? What has called our slate clubs, and funding clubs, and money clubs, and loan societies, and self-help societies, and civil service share and purchase societies into being? What has led so many of our friendly societies to avail themselves of the power given them off lend- ing to members ? What has prompted the Irish to set up their " loan boards," which in their elementary way are doing not a little good? Here we have the proof of a need and a demand actually evidenced in the existence of rudimentary institutions which supply it in a more or less inefficient way. For the most part these institutions are very insecure, often avowedly temporary institutions, which minister to need in a hand-to-mouth fashion. As a rule they have no funds of their own. They deal out the money which comes in by subscriptions, and which may be withdrawn to the last farthing any day. Hence their instability. They can grant no long loans, which are the most useful loans for men who, let us say, wish to set up in business, to purchase articles for agricultural use, or to pay off an old debt. i The slate clubs are, of course, very insignificant, and merely temporary con- cerns, but widely diffused. The loan societies, I am glad to say, are going altogether out of favour, and their number is rapidly dwindling. Last year only six new societies of this order were registered. The Act under which they are formed is a very incon- venient Act, and deservedly unpopular alike with the Treasury and with the magis- trates, whose assistance is appealed to call in bad debts. They are so organized as to create no touch or mutual control among members. No borrower wishes it to be known that he has borrowed. As a matter of fact, nearly the entire management is committed to the secretary, who in many cases draws a substantial salary. Eates of ADDENDUM 123 APPENDIX No. 3 interest are high, though disguised in the shape of commissions and special contribu- tions tacked on to the usual 5 per cent for forty weeks, equal to 6 per cent per an- num, payable in advance. There are still about 350 of these societies in the kingdom, and it ought to be pointed out that they are composed of just the class of men who abroad group themselves together to much better purpose in people's banks. As they die out, their places are taken by " specially authorized " societies formed under the Friendly Societies Act, which are at any rate rather better organized, and by "lending societies " constituted under the Industrial and Provident Societies Act. There are about 245 of the former, and a very much smaller number but doing a comparatively larger business of the latter. The number of both is increasing. At best, these in- stitutions are imperfect. Their prototypes, the original loan societies, formed under the Act of 1840, were authorized as " Friend of Labour Loan Societies." However, since their rules do not, like the rules of people's banks, prescribe a supervision over the employment of the loan, and money is accordingly generally borrowed for improvi- dent purposes, which leads the borrower into enduring mischief, they richly deserve the nickname by which in fact they have become known, as " Enemy of labour loan societies." Under their faulty organization very much money has to be called in by legal proceedings. In 1890 there were no fewer than 3,052 summonses issued. On page 28, he says: ' That hits a weak point in our economic system. We pride ourselves, on both sides of the political boundary line, upon our " popular " institutions, which make us, as we think, the most " democratic " nation in Europe. Nevertheless, in respect of the main supports of the two great divisions of our economic fabric we are distinctly anti-democratic. As the basis of agriculture we have land laws which, for good or for evil, are, from a democratic point of view, a century at least behind those of other countries. And as the basis of commerce we have credit still almost the monopoly of the rich. We do not, accordingly, know that which, thanks to their people's banks, the Germans and Italians have well learnt, namely, what an ample and practically in- exhaustible resource of productive power there lies hidden in the labour, the frugality, the honesty of the nation's workers, as material for what Commendatore Luzzatti calls " capitalization " just as people who have not seen rivers like the Danube or the Rhine, could not possibly estimate from the little rills and driblets which go to make them up, what a vast volume of water may be collected from those insignificant sources. It is the object of the founders of " people's banks " to bring those scattered streamlets together, to give them aid and force, and by doing so to make the very atoms which compose them more , fruitful, more productive by the sense of responsibility awakened, the principles of business instilled, the knowledge of dealing with money and an apprecia- tion of its productive power diffused. It is quite true, as Dr. Johnson unkindly re- minded Goldsmith, that it takes 240 poor men's pence to make one capitalist's sovereign. But once the sovereign is so put together, it is a totally different sovereign from that taken out of the rich man's safe. It has behind it 240 wills, 240 pairs of watchful eyes, 240 thinking brains. It has, so to speak, become an animate sovereign, with prudence, energy, vigilance, diffused through all its parts. Every spring, every wire of the composite machine takes a personal interest in the collective doings, watching the other parts, guarding against loss and waste, correcting the slightest irregularity. And the more completely the distribution is carried out, the lower the "democratising" organism descends, so as to gather up from the lowest strata all available and useful elements, the more fully, so we see in the practical application of the principle abroad, does it realize its beneficent aim. Not without reason, accordingly, did Commendatore Luzzatti inscnoe upon his banner, when he started on what proved to be a triumphal progress of economic success, the apt motto: Aspirare a discendere." And on page 137 : 1 Let me quote upon this point the report of the Lords and Commons Committee of 1826 on Scotch banking. " Any person," so says the report, " who applies to the bank for a cash credit is called upon to produce two or more competent securities, who are 124 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VI!., A. 1907 jointly bound, and after a full inquiry into the character of the applicant, the nature of his business, and the sufficiency of his securities he is allowed to open a credit." " This system/' so the report goes on, " has a great effect upon the moral habits of the people, because those who are securities feel an interest in watching over their conduct ; and if they find that they are misconducting themselves, they withdraw the security." Here are two important elements of security indicated establishment by inquiry of the borrower's trustworthiness, and control of his action of employment. There were at the time spoken of about 11,000 cash credits outstanding collectively for about six millions of money. In addition to the 11,000 borrowers, there were, as the evidence points out, between 30,000 and 40,000 persons liable for the loans, acting as checks and controllers; 30,000 or 40,000 pairs of eyes, directly interested in the case, watching the borrowers on behalf of the bank ; 30,000 or 40,000 tongues to remind them of their duty, and warn them if they threatened to go wrong. That explains the whole satisfactory working of the system. Here are the two main pillars of co-operative credit recognized joint liability and individual checking. The sureties become an intermediate body between capital and want, helping the latter, but also effectually safeguarding the former. ' Now, this is co-operative banking applied in a very halting and middle class sort of way, among people who possess property and also some commercial education. Our object is to dive deeper in the words of Commendatore Luzzatti, aspiriamo a discendere so we must proceed upon very much broader and more popular lines.' On page 370 he gives the success of one such co-operative society as an evidence that that system answers the purpose for which it is advocated : 1 The Self-help Society of Ealing lent out in six years 5,028, and did not lose s penny. It is true that in respect of not quite 11 the sureties had to be called upon to make good their principals' default. But of that sum six was guaranteed by the vicar, who is considered fair game for robbing and who has in consequence very pro- perly been disqualified for serving as surety again. I take it that these are very satis- factory results. And even in this elementary form the resort to self-government and quickened responsibility is found to have a directly educating effect. One member borrowed 2 from the Vicar, which he apparently never thought of repaying. He joined the Self-help Society, borrowed from it, and paid punctually. " How is it that you don't think of repaying me ? " one day asked the Vicar. " Ah, you're the Vicar, you don't want it," was the reply. That shows the difference between private lending and co-operative lending, as it were, in a nutshell. And here, in this society, obviously, we have all the elements of a people's bank in germ, and a people's bank, I hope the Self-help Society will one day become.' Speaking of share purchase and advance societies, a peculiar kind of association in existence in England among certain classes, he adds on page 371: ' Scotland possesses a far more democratic co-operative credit institution in its " People's Bank " of Edinburgh, a very useful society, formed to enable working folk to purchase their own " flats." Hence the security which is pledged, -generally speak- ing, consists of realty though the society has taken power to lend on personal security also, and to a very small extent avails itself of that power. It raises its money by 1 shares, payable at the holder's option by half-crown instalments. Beginning its work in a very modest way in 1889, it has in six years crept up to a share capital subscribed of 2,604 (only 1,348 paid up) with a reserve fund of 150. On December 31 last it had 12,598.8^3. outstanding in advances to members, besides 886.19s.lld. out- standing on overdrafts, and 71 Is. lOd. advanced on bills, therefore 13,536 13s. 5d. lent out in all. Its lending is done at varying rates, ranging now from 3J to 5 per cent, according to the quality of the security given. The business has proved steady and safe, and unquestionably a convenience to the members who apply for loans. A fact particularly deserving of notice in this, that, according to the testimony of the secretary, the whole of the money advanced was lent out to people " who would not ADDENDUM 125 APPENDIX No. 3 have approached the larger banks, which are generally looked upon as aristocratic in- stitutions." This makes thoroughly good what Chamber's Journal wrote in 1883: ' There is a great blank or want of intermediate banks between the large joint- stock banks and the savings banks. We have no banks to correspond with the People's Bank of Germany, or the moderate sized national banks of the United States. There is a large, industrious and respectable class of small farmers, tradesmen, shopkeepers, and others who are left out in the cold. There should be popular banks and banking facilities provided for the numerous class of small customers who require a bank to deposit their savings in, and at the same time to turn their little money to the best account ; also, on the other hand, to accommodate those who may want to borrow small sums occasionally for stocking their farms or their shops. 7 1 There should be such banks. The instances quoted conclusively prove the want of them, and they also show that nature, making its bidding heard through the uner- ring voice of instinct, leads those among us, who are in want of money, to seek relief, in principle, by precisely the same methods by which foreigners have found it. Every one of the societies described may be considered a people's bank in embryo q, people's bank in the rough, hewn out of the same material, but not yet properly squared and put together, answering its purpose as does a log-hut as compared with a well-con- structed building in a partial, elementary and temporary way.' Hon. Mr. F. A. Nicholson, in his exhaustive report prepared with a view to in- troduce this form of credit in India, comes to the same conclusion, as shown by these lines : ( It is, then, essential to discover methods of credit which, while supplying capital at half of present rates, will equally tend to keep the borrowing down; it is believed and urged that co-operative credit societies or village banks will not only achieve or tend to achieve these objects, but will equally develop many desirable and even essen- tial characteristics such as those of thrift, prudence, self and mutual help, will ini- tiate those forms of co-operation which tend to assure to each man the full value of his labour, and those stimulating ideas of progress so greatly needed by a conservative and isolated peasantry. Such societies will, as in Germany and Italy, everywhere form centres of economic and moral progress (De Laveleye).' Mr. E. A. Pratt, in his able book l On Organization of Agriculture,' published in 1904, does not hfcitate to affirm that co-operative credit is a necessity for agricultural England. On page 310 he says: ' Another factor in the situation is the absolute need that agricultural credit should go hand in hand with agricultural organization. The necessity for this dual arrangement has been proved over and over again on the continent of Europe, and though the financial position of British agriculturists in general may be more favour- able than that of the peasantry in various other counM-ies where an easy agricultural credit was established years ago, the extreme desirability of such credit being avail- able in Great Britain, also, is beyond any possible doubt. ' Happily, here again a good commencement has been made by the Co-operative Banks Association, whose headquarters are at 29, Old Queen street, Westminster S.W. The purpose of this association is to establish both town and country co-opero. tive banks, the former being registered under the Industrial and Provident Societies Acts, and issuing 1 shares, paid for in weekly instalments of 6d.; while the latter are registered under the Friendly Societies Act, and borrow money from the Central Banks Committee on the collective credit of the members as the town banks do on ths credit of their shares for the purpose of making small advances for productive pur- poses. These country co-operative banks are, in fact, of that Kaiffeisen type which has already conferred such inestimable benefits on so many countries abroad, and their adaptability to the requirements of the small cultivator, the village tradesman, and the labourer in the rural districts of England has been abundantly proved by the eleven village banks which have already been established, four of them being in Lei- cestershire, two in Worcestershire, two in Norfolk, and one each in Hampshire, Not- 126 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 tinghamshire and Leicestershire. Where these banks exist there is no need for individ- uals of the classes mentioned to resort to the professional money-lender, and loans of from 2 to 10 or 20 can be readily obtained by honest and deserving toilers for the purchase of live stock, fertilizers, or implements, the repairing of glass-houses and other purposes. The little timely help thus granted has, in many instances, been of practical service, while in every case the instalments have been punctually repaid. There is room for hundreds more of such village banks in England, and until they have been established no complete system of agricultural organization can be hoped for. While, however, village banks of this type are calculated to fully meet the requirements of the "small" agriculturists, they are not likely, on their present basis, to answer the purposes of farmers who conduct operations on a large or a fairly large scale, and it is foreseen that for them a different kind of agricultural credit will have to be cre- ated. To this point I shall revert in the concluding chapter.' And on page 375: ' So I place in the forefront my recommendations that every encouragement should be given to the efforts already being made to promote combination among the British farmers. But experience has already shown that no really effective scheme of agricultural organization on a widespread basis can be carried out, even in Great Britain, unless supplemented by some practical system of co-operative agricultural credit banks, arranged on so comprehensive a scale as to meet the varying wants of all our agricultural classes. There may not be in England, Wales, and Scotland so large a proportion as in Ireland and in various continental countries of those very small cultivators to whom the loan of 5 or 6 from a co-operative village bank would be a great personal convenience. A certain demand for such facilities there undoubtedly is on the part of labourers and very small producers, and such demand the Co-operative Banks Association should, with adequate support, be well able to meet. But a wider basis of operations than this is required to answer the requirements of farmers who would want to borrow more substantial sums, and might find it an inestimable benefit if they could obtain them from a co-operative credit bank. * Still more effectually would such a bank facilitate the operations of an agricultural association, which would secure loans on the individual and collective credit of its members for the purchase of the necessaries required by them, and receive payment in such convenient instalments as might be arranged. Especially could costly agricultural machinery be thus obtained by an association of farmers without their being required to advance any capital of their own, and without, in fact, their paying anything except the stipulated sums for hire, by means of which the sum expended would be eventually repaid. While, therefore, agricultural science and the economic situation of to-day have rendered essential a greater resort to agricultural machinery, if only as a means of reducing the cost of production, agricultural combination has brought the use of even the costliest machines within the reach of the humblest cultivator, placing him in practically the same position, in this regard, as the most prosperous of his neighbours. 'Whether the British farmer acts individually or collectively, the financial question calls, indeed, for serious consideration. It might even be argued that until the financial problems which arise have been satisfactorily disposed of, no great progress at all will be made. In almost every agricultural district in Great Britain farmers or cultivators of the smaller class are practically in the hands of commission men or brokers who advance money to them before their crops are ready, and afterwards get the produce at substantially less than its legitimate value, because of the financial obligations which the growers incurred towards them at a time when they were pressed for money. Not only does the individual farmer suffer, but the market price of the commodity in ques- tion is affected. Illustrations of these practices could especially be drawn from the hop- producing districts of Surrey and Hampshire, where it is no unusual thing for the hop growers who begin with obtaining advances from the dealers to finish by realizing about three-fourths of the actual value of their crops. An agricultural co-operative associa- tion, backed up by an agricultural credit bank, could meet this evil by itself under- ADDENDUM 127 APPENDIX No. 3 taking the sale of the produce, advancing to the farmer the greater part of the amount which the crop might be expected to realize, and paying the balance to him less a moderate charge for expenses when the transaction had been completed. In this way the grower would no longer be at the mercy of the dealers, better results would be obtained for the sale of individual lots, and there would, also, be a greater prospect of the market prices being maintained, in which case the larger class of growers would benefit as well as the small ones. Reference to the chapter on " Hungary " will show how effectively the system here described has been carried out in that country in re- gard to the production and sale of wheat. ' There is no need for me to enter now upon any detailed statement concerning the precise lines to be followed in the formation of those co-operative credit banks which would provide the good financial resources needed by the Agricultural Co-operative Associations to carry out the above-mentioned policy of defence, in addition to the other arrangements in respect to purchase, &c. But on the question of ways and means I would commend to those who are interested in this branch of the subject a perusal, or even re-perusal, of the chapter on the position in Italy, where, as I have explained, the savings effected by the artisans in the towns are rendered available for the purpose of loans to agriculturists in the district in which they have been obtained, instead of being sent away to be invested in government securities, or to be put into, perhaps, dubious foreign speculations. The financial position of Italy is, of course, altogether different from that of Great Britain; but if, for instance, the deposits made in the Post Office Savings Bank by the working classes in one of our great industrial centres could, under some absolutely secure system, be utilized to encourage the starting of co-operative credit banks in the surrounding agricultural districts, the result would be only to confer a great advantage on the farmers, and not only to improve the general position of agriculture, but also to produce an increased demand for agricultural machinery, &c., the supply of which would mean that the artisans who had saved the money would get not only as good a rate of interest as they do at present, but a bonus thereon in the form of more employment/ Mr. E. T. Peters writes as follows, on page 15 of his book ' Co-operative Credit Associations in certain European Countries ' : 1 The success of the German credit unions and other co-operative institutions of credit in the performance of the particular function here under consideration that of supplying credit on reasonable terms in the smaller industries, rural as well as urban indicates that the enormous rates of interest from which these associations are affording relief did not arise from any exceptional risks to capital necessarily in- herent in its employment in the smaller industries, but from the want of that organi- zation of credit which existed elsewhere. Placed on an equality with the larger in- dustries in this particular, the smaller ones could at any rate stand on their intrinsic economic merits, and would only be driven to the wall in cases where the methods of production which they used were on the whole economically inferior. The fact that in agriculture and horticulture there is still a pretty wide field in which production on a small or moderate scale appears to be at least as well adapted to success as that carried on in the larger class of enterprises, may perhaps explain the circumstance that rural industry has profited by co-operative banking to an extent not foreseen in the inception of that system.' And on page 25: * In short, by such institutions as the people's banks credit is organized among the poorer classes, borrower and lender being provided with facilities for the mutual supply of each other's wants analogous to those provided by the larger financial in- stitutions for the convenience of merchants, manufacturers, and the larger capitalists generally. In his report for 1872, on the German industrial and economic associa- tions founded on self-help, Schulze Delitzsch observes, and in doing so keeps far within the truth, that, if traffic conducted on a large scale had been limited to the individual means of those by whom it is carried on, it would not have developed one-half of its 128 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 actual power; and he shows how the people's banks opened to the smaller lines of business, similar sources of credit to those which had theretofore been almost monop- olized by the larger ones.' M. Charles Kayneri, a gentleman standing high in the co-operative credit world of France, one who has very attentively studied this question, could assert in a speech delivered before such a distinguished audience as the one assembled in Paris in 1900, 1:0 hold an International Congress for the special purposes of studying and of spe- cially comparing notes on the movement of co-operation in all countries: 1 It is wrong to pretend that ordinary financial institutions can satisfy the needs of the interesting class of customers that exact reports of a special character, almost of a private nature, and dare not enter th^p imposine establishments. In the end only two recourses are open: usury or pawn-shops. The former is making enormous inroads; it wears out and exhausts the humble labourers. The latter supply statistics that are more and more painful and their customers consist, for the greater part, of the elements that form the large profits of the co-operative societies. In Paris, itself, the four-fifths of the borrowers belong to the category of traders, workmen, and em- ployees. The pawn-shop is the sole lending establishment accessible to the labouring classes in a time which, very justly, boasts of having achieved important progress in the art of lending. These establishments no longer exist to-day, and it is full time to oppose them with vigorous co-operative organizations which, giving credit to the man and to his qualities, will constitute shrines of moral and economic redemption for the people. ' It may, perhaps, be said that popular banks are useless, since the other banks serve the same purposes. Still, the countries of which we have just spoken are, as well as we, and perhaps better than we are, supplied with ordinary banks, performing, often on a larger scale than with us, the services that our banks render. ' We must, therefore, suppose that the popular banks have a special sphere of action to which our French institutions of credit do not correspond. ' Before going further, here are a few preliminary explanations regarding the words " popular " and " co-operative." ' We need not dwell too long on the consideration that if, in a democracy, all per- sons form part of the people, from the highest in social rank, in talents or in wealth, to the most lowly, custom, however, applies the adjective popular to matters that specially interest the greater number, especially those less favoured by fortune; that in this sense we say : " a popular theatre, a popular meeting." But let us explain in a less off-hand way the meaning of the words : Why say " popular bank," " co-operative association " ? Why not simply " bank," or " association " ? Do different principles apply to the one or the other ? Would you pretend, might we not ask you, that for the use of the labourers there is one political economic policy and for that of the employers there is another one? No. The laws of economy are universal, both as to time and space. They do not change, neither with the colour of the skin, nor on account of religious creeds, nor because of political systems, nor even without offence to Montes- quieu in consequence of climate. They are one, as is their sister, physical law. But if the principles never vary, the methods of applying them may, according to the sphere in which they act, differ. It is thus that the justices of the peace, popular courts created for small cases and humble people, avoiding costs and, what is often more im- portant, travel and loss of time, decide nevertheless as do all other courts, by referring to the same codes and applying the same laws. It is only the form that changes. i From the expression let us turn to the matter. "A co-oparative association " is one each member of which, being of moderate means, is at once a customer and a partner. It is mutual, each one giving and taking at least in law, if not always in practice. Its aim is not benevolent but, with previous compensation, the enjoyment of advantages fixed by law.' And further on ; pages 4 and 5 : ' The object of the credit is to cause a useful circulation of capital, making it pass ADDENDUM 129 APPENDIX No. 3 through the most experienced hands. I cannot, let us suppose, get more than 4 per cent on my capital, while my neighbour, being more clever, but having no capital, could, with like risk (a sine q^ta non condition), get 6 per cent on it. I lend to him, he gives me 5 per cent. Each one of us gains 1 per cent, and the association (or partner- ship) gains 2 per cent on the capital. 1 The credit thus serves to better classify the capital ; it does no more, but it does no less, and if free it contributes largely to the increase of public prosperity. It should, moreover, aid only production. All credits of non-productive results are fatal, since, without compensation they draw on the future and help the association to grow poorer. ' But what about pity, commisseration ? Here is a good workman, with wife and children and a good record. He has no work and his funds are exhausted. He knocks at the door of the popular bank and asks for an advance on the future, to get bread for his care and himself, until he finds work. Will you reject his petition? Why, great heavens, yes! As a popular bank, should we pass for people with sentiment ? Why, great not to the bank he should apply in this case, no more than he would, when well, apply to th*e hospital; it is to a mutual association, if he had any forethought; if none such exists, he should apply to a benevolent society. We cannot too often repeat it, a popular bank, to have life, must be an interested business. Charitable societies, and above all, benevolent institutions, are disinterested in the division of their resources; such is their principle. A popular bank cannot prosper, nor even live, and cannot, therefore, render the services that belong to its sphere, except if it be managed strictly and with all the rigour of its principles. The past failures of these institutions are due, in great part, to a forgetfulness of this saving spirit of direction. ' For example, a workwoman wants to buy a sewing-machine to facilitate her work. If the amount needed for the purchase would be loaned her she would be sure to return it in a year at most. In view of the short delay in the loan there would be no difficulty in giving her the advance, provided, however, that the total amount used for that kind of transaction be limited to a figure both provided for and reasonable. ' Mr. Leon d'Andrimont tells of a baker, who rented, to carry his bread from house to house, a small cart for 30 cents per day. He went to the popular bank at Liege ; the latter advanced him 100 francs which he used to buy a cart. He economized the cost of the rent of his vehicle; he carefully laid that saving aside, and every three months he came and deposited in the bank, to diminish his loan ; at the end of a year he had completely settled his debt, and besides the cart had become his property.' Mr. Courtois adds that these instances show conclusively the necessity of such organized co-operative credit for the working classes. BENEFITS OF CO-OPERATIVE SAVINGS AND CREDIT ASSOCIATIONS. The benefits to be derived from co-operation of this form are numerous and un- deniable. They are singled out in terms that admit of no possible doubt by all those who have studied this question and have given to it a fair and unprejudiced considera- tion. The results have convinced all those who have taken the trouble to examine them that co-operation does confer the greatest possible benefits upon the poorer classes without doing any injury to any one outside these classes; nay, more, in doing good to all the community in which such associations are working. Here are the evidence of the leading authorities on the subject, either individuals or public bodies : On page 47 of the pamphlet already quoted, ' Co-operative Credit Banks/ Mr. Henry W. Wolff says : * Credit representing a volume of possibly 200,000,000 a year. But where they exist they have set flowing a current of new working capital, capital drawn from the resources of the money market, the accumulated wealth of the nation, available for fructifying uses, watering the deserts of insufficient economy with streams of treasure, which, seeing that in Germany 1,055 of the largest co-operative banks lend out annually about 80,000,000, I do not believe that I have over-estimated at about 200,000,000 a year. That is not money realized, but money working in people's hands, at points of the economic and social fabric where it is most wanted, 130 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 and where, while doing socially greatest good, it produces economically the largest effect. Wherever there is a people's bank or a village bank established, sufficiently strong, even if it be not of the best of its kind, the small shopkeeper, the artisan, the workinginan, the small cultivator, need not miss an opportunity of earning or saving for want of ready money . Should an artisan want to buy materials for his trade, or a new set of tools, or should he have to tide over a period before he can realize the reward due for his work ; should a working woman wish to buy a sewing machine to work with, or to purchase furniture or groceries cheaply for cash, instead of at an extrava- gant price for credit; should a peasant desire to purchase a pig, or fertilizers; should a poor man have the ambition to acquire a house of his own provided that these people can show that they are in a position to take the liability involved upon them- selves, all these wishes, all these ambitions, may be easily gratified. The money is available for them; and it is available in the easiest as well as the cheapest way. If their case be a good one, they may make the purchase repay its cost out of its own production or economy, and so are freed of all care with regard to providing the money. There are thousands of examples of this of articles bought, remaining the purchaser's own, valuable acquisitions, without the purchaser ever having been re- quired to put his hand into his pocket. What an enormous boon this has proved and is proving in a constantly increasing volume to the large mass of people who have to support their life by working and earning, need not be told.' And on page 48: 1 Before the village banks became a power, agricultural co-operation was absolu- tely unknown in Germany and in Italy. The same might almost be said of France for although agricultural co-operation generally was begun concurrently in respect of most of its branches, the supply of co-operative credit, rightly regarded as the driving- wheel of the entire machinery, was, as a rule, incorporated in it from the outset as the most essential feature. In Germany and Italy, co-operation in agriculture was not until co-operative banks grew strong. Now, in Germany, it has by a long way outstripped our own. It may be seen stirring and bustling everywhere. Co-operative credit raises up co-operative dairies, not by the score but by the hundred, increasing the yield credited to each producing member considerably, providing the money for starting, which is gradually paid off at easy rates. Co-operative credit raises up co- operative wine-presses, which return the cultivator twice the price for his grapes that he could obtain by private pressing, and return it him in cash. Co-operative credit raises up and sustains co-operative workshops, in which workmen grouping them- selves together, turn their labour to considerably better account than they could do by employment, each by himself under a master, and secures them in addition the invaluable boon of independence. It helps the navvies and stonemasons of Italy to form strong associations which practically regulate the labour market, improve wages, repress the employment of children in unhealthy occupations, as in tne weeding of the pestiferous rice-swamps. Co-operative credit helps people to establish co-operative insurance. There are other similar uses to which it readily lends itself. The supply of money is economically what the supply of water and sunshine is in agriculture. It lends itself to the production of practically anything.' In his book on ' People's Banks,' Mr. Wolff writes as follows : 'In 1874 the late Emperor William appointed a Koyal Commission to inquire into its work, presided over by the late Professor Nasse, and having Dr. Siemens for a member. The report, published in 1875, proved so favourable, that the banks have from that time forward counted the Imperial family among their warmest patrons, including the Empress Frederick, who has more than once given proof of her interest. The late Emperor William testified his approbation by a gift of 1,500 from his^ privy purse, to which his grandson has recently added another 1,000. Among the evidence collected by the commission mentioned occur the statement already referred to of the Rhenish parson, who confessed that the Raiffeisen bank in his parish had done far more to raise the moral tone among his parishioners than all his ministrations, and ADDENDUM 131 APPENDIX No. 3 the deposition of the presiding judge of the Court of Neuwied, which shows how ma- terially litigation has diminished in his district; owing to the conveniences afforded, and the good principles instilled, by the local Raiffeisen Loan Bank. Those good effects have been sustained. In 1886 the Diet of Lower Austria sent two experts to inquire into the system, who expressed themselves so entirely satisfied of its merits, that that diet and other diets of the Austrian Empire following in its footsteps, at once resolved to encourage the formation of Raiffeisen associations in their several provinces, and backed that resolution with grants of money. In Saxony, in Baden, in Hesse, in most provinces of Prussia, governments are giving proof of their desire to have these banks multiplied.' Again, on page 357: ' That is not the result in the creative work accomplished upon which I should wish to lay greatest stress. I should be disposed to set an even higher value upon the quality, than upon the mere quantity of the work done upon the reaching down to the very humblest and necessitous, whom nothing else would help, and raising him by education and by training to business ways, in addition to providing him with means for turning such ways to account. To the application of this power it appears, moreover, in truth impossible to set any limits. Its raw material abounds wherever there is opportunity for work. Its opportunity for converting that material into money's worth, by the specific expedient of making it men's interest to be business-like and honest, exists wherever there is need. To my mind there has never been a more prolific source of potential temporal good placed at the disposal of those who are dependent upon labour. For to them co-operative banking means, if they choose to profit by its gifts, not democratisation of credit only, but, by the help of democratised credit, the demo- cratisation of production also, the securing to the toiler of the full reward for his labour and emancipation/ And on page 358 : 1 Do not let us quarrel over the legitimacy of such a change. It will never do away with capitalist enterprise. It will never bring about the establishment of an economic ochlocracy. But it may open a fair field for capacity and industry, and the proverbial " career " to " talent " in the very poorest. It would unbuckle the knapsack of the soldier in the great industrial army, in which, according to tradition, lies concealed the marshal's baton. To a nation it must mean much more. It means or at any rate, it may mean concurrently with democratisation, an indefinite increase of pro- duction, a wholesale mobilisation of productive forces, fuller satisfaction to the toiler without additional taxation of any one, diminution of want, a diffusion of prosperity, to a very great extent, the disappearance of economic strife, education, elevation, the making the entire community richer, happier, better.' On page 288 : ' Belgium had its struggling small tradesman, its moneyless cultivator of a small holding, its artisan, its itinerant dealer in cheap wares. M. d'Andrimont tells of a hawking baker whom he found in Liege, hiring his barrows at the rate of three pence a day. A people's bank afterwards enabled the man to purchase the barrow out and out, by instalments of the very amount which he had been paying in hire, in less than a year, and to find himself afterwards every year 4. 10s. in pocket. Of course, there are thousands of similar cases. oFrtunately for the classes spoken of, M. Leon d'Andri- mont, a member of an influential family, h*ad an opportunity of witnessing in Germany the marvels which co-operative banking was there bringing forth for equally necessi- tous folk, under the inspiriting leadership. of Schulze-Delitzsch/ On page 388 : * A little time after, when its advantages came to be understood, and loans were rather freely applied for, its embarrasment proved the other way. The borrowers' promissory notes, which abroad are employed as a means of raising cash by being dis- counted, could not be so passed on, because they were made repayable by instalments. 132 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 Eventually money came in in the shape of deposits, and then a local bank accorded an overdraft. By the end of the year, April to December, the number of members had risen to a hundred, holding collectively 425 shares. Four non-members had deposited 295 10s. The bank had advanced in all 624 17s. in twenty-eight loans, ranging from 1 10s. to 70.' And again, on page 391 : * Your bank,' so writes the public auditor, Mr. Thomas Scott, in his report, 'has made its way amongst the people without solicitation or advertisement. It was an experiment. Your proceedings were of necessity of a tentative character, and I am bound to say they have been conducted with marked intelligence. You pioneer bank can now be taken as an example over the country. It illustrates clearly the unspeak- able benefit which may be conferred on the honest poor by co-operative banks. Without them co-operation is to hundreds of thousands of the people an impossible thing. It is, therefore, not extravagant to say that the modest and unpretentious co-operative village bank ought to be regarded as the mainspring of the whole movement.' Here is now the weighty evidence of the committee appointed by the Governor General of India in 1901. After having thoroughly studied the question and having given to it all possible attention and care, so convinced were they of the immense benefits to be derived from the working of this form of co-operation, that the members of that committee unanimously concluded, on page 8, their very favourable, almost en- thusiastic report, by the following w>rds that show how far they were ready to go to insure to India the advantages of credit co-operation : ' Some long time must yet elapse before any societies of the kind which we have in- dicated can be considered as having passed out of the experimental stage. Any opinion as to the ultimate thrift and alleviating the burden of agricultural debt can be little more than a matter of conjecture. Lengthened experience alone can show whether the natives of India are prepared to follow the example of their western brethern in their appreciation of the advantages of co-operation. We are, however, convinced that the experiment is worthy of every encouragement and of a prolonged trial, and we believe that the lines which we have indicated are those which offer the most reason- able hopes of success.' I will show later on, by a very recent information, that this expectation is to-day fully borne out by the facts. On page 18, Mr. Peters, of the United States Department of Agriculture, says : ' It is by no means intended to present the system here considered, or any form of co-operative action, as a social panacea; but whatever other agencies may need to be invoked for the promotion of economic equity or general social well-being, it is within safe bounds to say that the practical results which co-operation has already yielded prove it to be one of the active, growing and beneficent forces *>f modern eco- nomic life; and this is, perhaps, nowhere more clearly manifest than in the working of those associations of credit of which a brief account will be found in the following pages.' And on page 116: 1 That there should, on the whole, be a larger overflow of capital from one dis- trict, one region, or even one country to another is no doubt inevitable, and so far as it occurs under normal conditions there is nothing in it to deprecate ; but it is a thing to be deprecated when capital sorely wanted for the supply of local needs is sent half the world's circumference away in search of an investment merely for the want of a channel of communication between its owners and their near neighbours. Such a channel is to a great extent supplied by institutions like the people's banks of Europe and the building and loan associations of the United States, and the more these insti- tutions are perfected, adapted to varying wants, and disseminated among the people the more will the present top-heavy fabric .of modern credit be broadened in its foundation and narrowed in its overhanging superstructure. In fact, few things could ADDENDUM 133 APPENDIX No. 3 do as much to guard the business world against the financial crises which so frequently paralyze its industries as the general existence of institutions which tend to retain within the neighbourhood of its origin all the capital for which there is a potential local demand, and thus to keep it as fully as possible under the continued oversight of its owners/ Under the title of ' Advantages of these banks over money-lenders/ Hon. Mr. Nicholson, in his very exhaustive report on this subject, sets forth in detail the benefits spoken of here. The following quotations are selected from a great number that could be given with equal force : On page 16, he says: ' The main advantages of a bank over a money-lender are not that it will, in itself, eliminate indebtedness, but that (1) it encourages thrift and productivity by the gathering of large and small savings otherwise idle; (2) that its principles are fixed, its methods public, and the results of borrowing from it calculable; (3) that it will ordinarily lend on such terms that, when distress comes, as it must frequently come, to small farmers, they can borrow from it with the hope of extrication at no great interval, whereas with the money-lender there is^ little hope, so that debt means continuous debt. While, then, the idea that the establishment of agricultural banks is to prove a panacea for indebtedness is a delusion, it is perfectly true that they are essential factors in national progress; it is, however, equally true that the amount and character of indebtedness and the results to national character depend largely upon tHe foundation principles and methods of the bank. ' Credit, te be safe and sanative, must be preceded by thrift; not merely in the sense that the capital to be lent first must be saved, but that it is the man who saves who is the man that ought to get and can use credit. One great cause of individual unthrift is the absence of facilities for thrift, of places for the due and productive custody of savings ; if these are provided at each man's door, saving will take the place of expenditure, productive deposits that of idle hoarding. Hence the village savings bank is the primary desideratum of Indian rural banking, and every effort must be made to place facilities for saving in every village.' On page 34: 1 Free and unrestricted credit to agriculturists in isolation, is a positive danger ; credit in association, gjuided and influenced in its use by the wiser counsels, by the increased self-respect and self-restraint, which association with the wiser and more prudent in mutual self-developed, self-managed association, produces, is a powerful restorative, an educative and disciplinary agent, a national necessity. 1 Hence it is not merely cheap and facile credit that is needed ; it is not money lent on easy terms without regard to the use made of the money ; it is guarded, guided and productive credit that is the necessity of the times; the form which organized credit must take must in itself be a safeguard, a guide and a restraint, so that credit may be used not for mere extravagance or even without intelligent foresight, but only in such manner as will conduce to prosperity and production. Credit which takes no heed of the borrower, no care for his well-being, is not the credit that this study con- templates; only that credit is sought which develops the man and the nation; it i3 the development of men, not of banks, of banks only as developing men, that this study desires to facilitate the promotion of thrift, the utilization of petty and idle hoards in productive industry, the necessity for drawing from larger sources of capi- tal, the ability to grant long-term loans and to receive loans back in small instalments ; the public and open methods of business; the general absence of fraud and chicane in dealing with borrowers; the absence of desire to possess themselves of the lands of their debtors, or to acquire undue influence over them for selfish ends; the tendency to grant loans chiefly for productive purposes for the sake, however, not^of the bor- rower, but of their own security; such are advantages common to all institutions of organized credit. But the greatest of all advantages is found in that class of banks 158410 134 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 called co-operative, where the advancement of the members, the borrowers, is the prin- cipal object of the bank and not the mere earning of dividends on capital, still less the exploitation of the borrower. The moral and material effect of association in a really co-operative bank is marvellous; the new power obtained by the members, the edu- cative influence exerted by the bank in promoting improvements and discouraging extravagance, the continuous impulse towards further developments, not merely in credit, but in all manner of social and industrial improvements, which the principle of assocdatioin develops, proclaim the co-operative societies of Europe and America as factors of incalculable value in social development. It is this reason above all others that is of weight in determining whether credit should refrnain a monopoly of the private lender, or should develop by organized association. It is not every organized credit that has all these merits; joint stock credit is good, but it lacks the weightiest of all reasons, that of the effect of mutual help in co-operative associations. Joint stock credit has the interests of lender and borrower in a manner opposed while in many such organizations, it is the special interests and often object of a body of men to exploit borrowers and depositors for the sake of private gain. Joint stock credit attains its real development only when its own interests are absolutely bound up with the interests of the community, when the community is at the same time the pro- moting body and the clientele; in other words, when it is co-operative. ' It is assumed, then, as axiomatic, that the establishment of an organized system of banking, especially co-operative, is desirable and even necessary, to promote the useful accumulation of capital, to develop the qualities of thrift and prudence, to assist industries and especially agriculture by long term loans, to turn credit into productive channels, and to stimulate into activity the great virtues of self and mutual help/ On page 35: ' That which is required jointly by both lender and borrower may be summed up in the word " proximity." The great lesson of European credit is that without absolute proximity there is no such thing as credit on any reasonable terms for the small folk; hardly, indeed, is there credit at all. Until of late only one form of credit satisfied this postulate, viz. : that of the private money-lender ; his credit satisfies the postulate of proximity, but not necessarily any other postulate. . ' The borrowers contemplated by this study are the men of the villages, and the loans those required by small and obscure folk; no bank of any ordinary type can get down to the village, ascertain the status of the small farmer and the security he can offer ; the expenses of the inquiry and the risks of the loan would render the necessary cost of any loan far higher than that of the local and proximate money-lender, who, probably a villager himself, certainly with a life-long connection with the village clientele, knows his men and their position better than they themselves. ' Proximity involving knowledge, mutual confidence, ease and cheapness of inquiry is an eseential ; without proximity no credit/ And on page 37 : ' Still more is this the case when the bank is of the co-operative class, in which men and not money are the objects of association ; the interest of the individual borrower is the interest of the bank, since the mass of the borrowers is also the mass of members, while the main principle of co-operative association is the promotion of production, thrift and mutual help among members. Hence it is clear that the safety of the borrower is promoted by banks of all classes, but chiefly by those of the co-operative type. ' This is still more the case with the co-operative form of bank for since the in- creasing welfare of its members is its particular raison d'etre, the productive use of its ]oans is in all cases urged upon members, who are deliberately dissuaded by precept, by example, by the occult as well as by the direct influence of associations of mutual help formed by the better and more prudent class of industrials, from borrowings which tend to embarrassment instead of development/ ADDEXDU11 135 APPENDIX No. 3 The International Congress of Paris, held in 1900, passed the following resolu- tions : ' Co-operative credit plays a beneficent part in the public economy of a country, by developing savings the smallest particles whereof it gathers up, by imparting to it usefulness both for the locality and for the working people, by contributing to lower the cost of money, by assisting the ordinary banks through its more accessible branches, by satisfying the most moderate needs of personal credit, by creating economic strength by a union of the weaker elements/ Again : 1 The co-operative credit association can place personal credit within reach of the humblest workmen. The congress recommends, as a means of application, the follow- ing order: currant account advances to productive co-operative societies, notably for the purchase or sale in common of goods, and to professional syndicates the discounting of clerks' notes by accepted drafts, the discounting of small workmen's utensils with guarantee, the sale at cost price and on monthly payments of workmen's tools, small advances at favoured rates and^ payable from funds specially raised on the profits, and for the benefit of the poorer people a gratuitous loan on honour or at a low interest, with repayments in small sums, on condition that such loan be prudently carried on, in preference to the intervention of mutual aid societies or of syndicates, and, if possible, administered by commissions wherein the working element prevails.' Revd. Mr. Miiller, president of PUniOn des Caisses Kaiffeisen de credit rural de la Basse- Alsace, one of the members of this congress, expressed himself as follows : 1 The local savings banks (caisses) of Alsace-Lorraine are very prosperous ; the loans and deposits are very numerous ; there exist many local savings banks in villages of from 1,000 to 2,000 inhabitants 'that since their foundation have 1, 2, 3, 4 and even 5 millions of francs taken in and given out. The transactions of the Guebuiller sav- ings bank (Haute- Alsace), for example, exceed one million francs per year. The money derived from the work of the people is thus used to establish the necessary credit for small or medium cultivation (farmers).' Mr. J. Blondel, professor at ' 1'Ecole des Hautes Etudes Commerciales de France,' said at this congress : 1 It had the result not only of supplying a cure for the crying evils from which the rural populations of Germany suffered, but it has been a powerful educative means in regard to saving, in creating an initiative spirit, a feeling of responsibility and co-operation, and has set up a barrier against the progress of collectivism. The idea of a moral amelioration is apparent in all the details of the organization of rural sav- ings banks, in the gratuitous operations, in the specifying of the use made of the sums advanced, which prevents squandering and leaves the directors of the banks with con- siderable authority over their debtors.' In his preface to the book of Mr. A. Batbie, ' Le Credit Populaire,' such an em- inent authority as J. E. Horn says: ' The vast field of modern industry admits of many combinations. Amongst these, the co-operative association, within the humble limits and with the rational tendencies that we have just sketched, is one of the most legitimate. It promises to be fruitful; wisely inspired and ably directed, it cannot fail to produce good results both for the working classes and for the economic community. Why should we refuse to the group of beneficiary workmen their share of the sun side by side with the aggre- gate of salaries workmen? 'Why should not an association of the working element be established just as well as an association* of capitalists? Why should the labour asso- ciation be inevitably condemned to failure when, on all sides and in all forms, the association flourishes and advances? ' On this last point facts have already given the reply. They refute the skeptics in a most positive manner. In England we know of over three hundred co-operative 1584 10i 136 INDUSTRIAL AND CO-OPERATIVE SOCIETIE^ 7 EDWARD VII., A. 1907 associations; we find as many in Germany; nearly all of them are prosperous. The associations of production in common supply a large contingent of these figures. It was designedly that, in the preceding pages, we specially dwelt on this category of labour associations. All agree that associations for production in common give the most room for objections of principles and for apprehensions regarding their prac- ticability. We have, therefore, sought to show the lack of foundation for such objec- tions and apprehensions; we have tried to show that the association for production clashes with no moral or economic law, injures no legitimate interest, has no unsur- mountable difficulty to meet; that, on the other hand, it presents appreciable advan- tages of more than one kind. These remarks it can be easily perceived apply a fdrtiori to co-operative associations, of much easier organization and operation, that have other aims: supplying in common, the necessaries of life, the purchase of prim- arily-needed materials and of implements for work, the common disposal of the in- dustrial products of the associates. Gladly would we pause before the fine results obtained in different branches of the co-operative movement; they speak most elo- quently/ And Mr. Batbie adds : 'When, as we said in the 'Journal des Debats' of the 15th October, 1863, we think that the 89 million francs, that in one year, out of the coffers of 243 popular banks, were loaned to persons who could not otherwise find any credit or obtain loans even on most onorous conditions; that the establishments which distribute among the working classes this fine credit of 89 millions (francs) have all been created and are all managed by associated labourers themselves, without any pecuniary or other help, either from the state or from the higher classes; that the 28 millions of francs con- stituting the active funds of these 243 leading banks belong for the greater part to the associates, who yesterday perhaps owned nothing on the collective credit of per- sons to whom, individually,, nothing would be loaned; it can be easily seen that the lending banks have already done wonders that formerly would have been deemed im- possible, and that they are destined to exercise a most happy and fruitful influence on the material well-being of the labouring classes. 'But according to our view, therein is not the most important side of this work; its moral influence must also be taken into account. The loan association accus- toms the workman to economize, to have order in his business, to be exact in his en- gagements, because otherwise he could not become or remain a customer-member of the association ; it develops in him a sentiment of fraternity and of intelligent co-opera- tion; it gradually makes him become a capitalist by means of the fund it obliges him to create, by the dividends he receives. Hence, what better means of causing the an- tagonism between capital and labour to disappear than by transforming the labourer, himself, into a capitalist, than by supplying him, in the meantime, with the means of making his credit fill in the void created by his lack of means ? Above all, do we, in fine, set this practical lesson, one of incalculable import : The leading banks teach the labourer in the most efficacious manner through success that the amelioration of his condition is in his own hands and nowhere else; that he must seek it in his assi- duity at work, in his spirit of forethought, in the advancement of his moral and in- tellectual life, in the respect he must thus win and preserve. Wheresoever this con- viction shall have penetrated the masses and shall have become the guide of their con- duct, the so-called lower classes will infallibly rise, without that this upward tendency can create the slightest apprehension in tHe other classes of society. ' To applaud and admire no longer suffice. " Study and imitate " would we now say to the French workingmen. But already are they so doing.' EDUCATIVE POWER OF CO-OPERATION. Among the benefits to be derived from co-operation, there is one which is so im- portant that it deserves to be singled out in a special way, namely, its educative power. This power is referred to almost constantly in the books upon this question, and it ADDENDUM 137 APPENDIX No. 3 will be found mentioned very often in the quotations here given, but a particular re- ference by extracts will impress more forcibly as it should be, by its considerabjta importance, this precious feature upon the mind. M. Courtois wrote a good many years ago, when the system was, so to speak, in its infancy, the following lines on page 76 of his book : ' Let no one be mistaken about it, the practice of credit is the best school to teach each one to have his rights respected as well as to respect those of others, which are conditions essential to liberty. Without being utilitarian, we cannot deny that, here below, self-interest is a great lever for good, and that to oblige the individual, in his own interest, to respect himself, to keep up his dignity, to keep his word, to watch over his outw^d appearance, to deserve by his conduct the esteem and the praise of those around him, is a powerful engine of civilization. Thus it is that, through the popular banks based on mutual and joint interests we can succeed in forming good citizens, devoted patriots, sincere and militant republicans, and that we can contribute to the consolidation, in a definitive manner, of our young democratic institutions.' And in confirmation of this, after more than twenty-five years of unbroken suc- cess, Mr. Nicholson states on page 11: ' It follows, then, that if the principles of rural banking are made widely known, and are accepted by the more intelligent classes, and if the law and the executive will assist the development of societies by suggestion, by the removal of disabilities and obstacles, and by the grant of various privileges, there is every hope of a rapid and wide development of small local societies, chiefly co-operative, thoroughly in touch with their clintele, independent of state aid, gathering in idle haords and petty sav- ings, providing facile, cheap, and above all safe and educative credit to their members, secure in the repayment of their loans, and exciting in a high degree, those great na- tional qualities of thrift, prudence, self and mutual help not merely in credit but in other directions, without which no nation can obtain a healthy and vigorous develop- ment/ And later on still, in 1900, M. Rayneri could with absolute truth say to the Paris Congress : ' From an educative and social point of view the utility of the co-operative credit system is also great and striking. The co-operative (associations) of credit impart habits of regularity and punctuality; they create respect for the falling due of credits; their members learn to know each other better and to appreciate each other the more; they frequently play the part of instruments of commercial conciliation; they help in fighting the fatal practice of making accommodation notes. Through them the feel- ings of mutual support and understanding revive and develop; to the social evils that egotism engenders succeed those benefits the dew of which is sprinkled over life by altruism; the struggle between capital and labour weakens; the weakness natural to the isolated labourer vanishes; co-operation transforms the latter into a material and moral force; it brings together and upon the same ground instruction, education, ex- perience, and it teaches men that they are dependent on each other, that they owe advice and support to each other ; in fine, it engenders and strengthens the cultivation of higher ideals; help for those who enter upon life not fully equipped, the demon- stration of credit, the capitalization of intelligence and honesty.' THRIFT AND CO-OPERATION. Now, in the matter of thrift, which is of such importance to the progress and wel- fare of a people that all governments of civilized nations have deemed it their duty to intervene in order to encourage its spread at a time when private initiative was not so active as it is to-day, and when the systems that are known now were ignored, co- operation is very valuable, as shown by the following extracts: On page 2 of the report of the India committee, we find these lines : 'Further, we consider that the efforts of government should not. be limited to 138 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 encouraging the establishment of purely agricultural societies. The Italian co-opera- tive banks were first started in towns, and, taking into consideration the results achieved by them, we consider that endeavours should be made to encourage the formation of urban societies working on co-operative lines. The object which these societies would serve would be two-fold. In the first place, we consider that they would meet an existing want in providing a medium somewhat more profitable than the Post Office Savings Bank for the accumulation of savings by clerks and artisans, and would thus serve as a useful and much needed incentive to thrift. The Madras funds, which are described by Ivir. Nicholson in the note appended to this report, in- dicate what may be achieved in this direction. Further, one of the main functions of such banks in Italy is the loaning of capital to rural banks, and we see no reason why urban societies in India should not similarly provide funds for vfllage societies. If this result could be obtained, the necessity for government aid to rural societies would be diminished, while the village societies on their side would play the part of agents of the urban society, and would so meet the difficulty of acquiring local knowl- edge which is at present the main obstacle to the spread of mufassil banking, and would furnish a secure and profitable investment for the surplus funds of urban societies. We consider, therefore, that the establishment of urban co-operative asso- ciations for the collection and loaning of capital either to their members or to village associations within the district in which they are situated would be desirable and should be encouraged. 7 In his ' Co-operative Credit Banks/ Mr. Wolff states on page 52 : 1 Co-operative banks have also proved powerful incentives to thrift. They have taught people the value of money, even of mere driblets of cash. And they have offered to them a money-box which has proved remarkably safe, and has consequently, in consideration of its other attractions, become their favourite savings bank. 1 Here are effects which certainly appear to make co-operative credit worth culti- vating. It does not come to the community with empty hands. It brings it something whereby to profit. Thanks to it, there are tnousands of arms employed, thousands of modest fortunes raised up, myriads of acres increased in fertility and yield, which without its assistance might be drags on the community instead of being a help to it/ On page 31 of 'People's Banks/ Mr. Wolff says : ' Savings banks were few and far between, and situated mainly in great centres, where they were accessible only to comparatively few. People accordingly required above all things to be taught to save. And while being taught to save, they must also be provided with suitable receptacles for their savings, and means for keeping those savings in their own districts, available for their own use, instead of allowing them to be drained away into large towns/ Further on, page 384: ' Here is an opening into which it appears to me that People's Banks are peculiarly well fitted to step in. Experience shows them to be safe; experience shows them to be popular. As I have been able to state, in Prussia law courts allow trust moneys to be deposited into their keeping. As I have likewise explained, in the words of M. Ros- tand and other witnesses, in Italy the counters of the Post Office Savings Banks stand decidedly second in public favour to those of People's and Village Banks, officered by men of the depositor's own choice, and therefore trusted by them local popular in- stitutions, in which each inhabitant knows that he has a direct interest, and of which he is jealous and proud. It might be the same thing among ourselves. And in all probability People's Banks would be able to allow a higher interest than the Post Office, and, under its dictation, the Trustee Banks/ And Mr. J. R Dodge, U.S. Statistician, in his letter on Mr. Peters' report, sets out: 'It is, however, distinctly represented that it is no part of the purpose of these institutions to enable the man who is always " a little behin3-hand " to get further ADDENDUM 139 APPENDIX No. 3 behind to give opportunity to cne inclined to spend his income in advance a longer reach and readier appropriation of his future gains to enable him to mortgage more of his future for reckless present use. They are intended to encourage thrift rather than prodigality/ Mr. Peters comments upon the same advantage on page 17: 'Let the point here be emphasized that while co-operative banks were devised with the idea of obtaining outside of their own membership the larger part of the capital with which they were to operate, and while this idea has on the whole been realized in practice, the strong point in the system has not been the power of diverting pre- existing capital into'different fields of employment from those which it would other- wise have found, but that of stimulating the creation of new capital by presenting new opportunities and incentives for saving. And this remark applies in a great measure even to the borrowed capital handled by the banks, which consists increasingly of savings, including in many cases those of their members, deposited with them at interest. In short, it cannot reasonably be doubted that the capital with which these banks operate, amounting in the aggregate to hundreds of millions of dollars, con- sists in large part of sums which but for the opportunities afforded and the influence exerted by these institutions would never have been saved, but would have disappeared in unproductive, sometimes even in wasteful or injurious consumption.' And on page 94, commencing on savings banks, he adds the following : ' It must not be forgotten that the co-operative credit associations operate most efficiently as saving institutions in connection with the weekly or monthly payments received fro mtheir members on their shares.' At the Paris Congress of 1900, Dr. Alberti, directeur de I'Union des Associations Co-operatives de la region du Khin, did not hesitate after a long and practical ex- perience, to assert : 'Doubtless the market for capital is not within easy reach of the associates, especially as long as the association has not attained a certain degree of prosperity, which attainment exacts heavy economic sacrifices and abnegation. But if the asso- ciates see that they can get money without saving and without imposing any priva- tions on themselves, such must be detrimental to the spirit of saving and of economy: that fountain of energy becomes tainted and in its place springs up a desire to draw the most possible out of the coffers of the state ; the association would make no further efforts to create for itself a patrimony based on associate shares and reserves.' USURY. This monstrous evil that brings disaster wherever it is rife can be effectively stamped out by co-operative credit. All the authorities unanimously concur in that view and assert that it is the only real remedy, for nobody would care to pay 20 or 50 or even 100 per cent if he can get money at 7 or 8 per cent per annum. Mr. Nicholson is positive on that point: ' The real method, however, of bridling the money-lender is by stimulating com- petition with him; in Switzerland thirty years ago the complaints against the usurer were as elsewhere; banks sprang up in obedience to the demand and in consonance with favourable laws of mortgage, registration and other stimulating circumstances; the result now is that the money-lender is authoritatively declared to be of no account as a factor in general credit, there being about 900 credit banks of various classes to less than 3,000,000 people.' (p. 24.) Mr. Peters is of the same opinion: ' There may te others with some capital lying idle who would be glad to have it earning a little profit and who might feel as much favoured in having some industri- ous and honest man take it and turn it to use as the latter would feel in receiving it 140 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 for that purpose; but as they have not become known as money-lenders, they are not applied to. The usurer is thus protected from their competition, while the competi- tion of the borrowers continues and enables him to impose almost any terms he pleases. All this changes as soon as an association is organized in the community on some such plan as that of the * People's Banks ' of Germany. Every one now knows where he can carry his little surplus of cash and let it earn him a moderate interest during the time for which he can spare it; and if the institution commands confidence, as the ' People's Banks ' so generally have done, many a little hoard is drawn from its hiding place and thrown into the channels of circulation. Then, too, as has been pointed out in the introductory remarks, these banks promote an actual incre&se in the amount of capital available, since both through the payments on members' shares and through the deposit of savings by both members and others, much money is received which, in the absence of such facilities for saving it, would have disappeared in unproductive consumption, (p. 24).' And further on, speaking of what has taken place in Russia about usury, he adds : 'Mr. Hitrovo, after a careful consideration of the facts, reaches the conclusion that the banks actually benefited their members during the decade in question to the amount of 22,000,000 rubles, or over $13,000,000, this having been mainly done by saving them from the necessity of borrowing from the usurers or selling their products at a disadvantage, furnishing them the means of getting on their feet again after un- foreseen accidents or losses, and enabling them to improve their industrial processes and methods.' After an exhaustive inquiry began in 1897 and completed in 1898 on money lend- ing, a committee of the British House of Commons reported as follows with reference to the very question of co-operative banks. The importance of this finding of the committee is still greater when one thinks that the object of their labours was the prevalence of usury in England and the best means to correct that evil. The opinion here quoted is, therefore, a very valuable one: ' Your committee have received important evidence as to the operation of co- operative banks on the continent, and in some parts of the United 'Kingdom. It ap- pears that the establishment of such banks has been of great use in abolishing, or largely diminishing, the trade of lending money at exorbitant rates of interest to the poorer classes. ' Your committee are impressed with the extreme usefulness of these institutions, and they are of opinion that they meet a real want, espcially in agricultural districts.' And Mr. Wolff is as positive as any authority upon the point, and many extracts could be adduced here from his writings, besides those incidentally already quoted. SELF-HELP. As a means to teach self-help, sp important for one to succeed in the struggle for life, co-operation is the best educator known. On page 10 of ' Co-operative Credit Banks,' Mr. Wolff says : 1 That being the object to be kept in view, it follows as a matter of course that people's banks must be co-operative banks. The people so we know from abundant experience are to be helped only by being made to help themselves. A rich man coming ing to their assistance with gifts and doles could not accomplish that which is wanted. His * good fairy ' gold would evaporate in little time, leaving its recipients in a worse case that before, more dependent upon others, less nerved for independent exertion. The golcl which is to provide real and enduring help must be dug by the people them- selves and represent the fruits of their own conscious efforts. To put the matter in the apt words of Dr. Liebrecht, a foreign philanthropist of experience, whatever is to be done for the workingmen ought to be done by the workingmen. Therefore the workingmen and those in similar economic circumstances will absolutely have to create their banking machinery for themselves. And that it is which compels them to walk in the paths of co-operation. For being themselves individually feeble, the work- ADDENDUM 141 APPENDIX No. 3 ingnnan, the small trader, the small cultivator, can effect substantial and abiding good only by combination. Hence the necessity of co-operation.' And in ' People's Banks/ he emphasizes this point : ' The record of our benefactions designed to help and raise the working classes is a record, to a great extent, of desires and efforts which do our philanthropists credit, but to the same extent' it is also a record of practical failures. Millions upon millions have been thrown away, as uselessly as if they had been cast into the sea, in kindly intended but injudiciously executed attempts to do good to others according, not to their own, but to our ideas, to give them ruffles when they wanted a shirt, and to give that luxury in a way calculated rather to make the receivers careless, than to make them thrifty. Only a few years ago we had proofs of a fresh instance of this given us in the complaint publicly expressed by a nobleman who had liberally purchased at his own cost " a large tract " of land beyond the sea, on which he had purposed, likewise at his own expense, to settle English emigrants/ (p. 19.) And further on, page 398 : ' Master the principle, adopt it loyally, and you may allow the rules to take care of themselves. That principle is that the institution should be absolutely based upon self-help, that its government should be democratic, that the quality of its work should be assured by a quickening of the sense of responsibility by checking, and union, and control. No gift from " honorary members " ^such as I have had to refer to, no patronage can have a place in these banks. Every dallying with greed, every yielding to the spirit of patronage, foreign experience has shown, adds a toe of clay to the huge brazen Colossus, and thereby threaten to overthrow it in spite of its size. And the thing must grow up from out of its own self, from the bottom to the top. None of the systems which have succeeded abroad have been organized from above. They have all risen from below. Nowhere, moreover, has this work been " good fairy " work. Every shilling's worth of success has been purchased by unremitting application, by economy, gratuitous labour (so far as gratuitous labour was possible), zeal and caution. And experience has shown that it is not otherwise to be obtained. There may be hindrances, and progress may at first appear slow, but in the end the work is bound to succeed wherever there is call for it.' Mr. Nicholson asserts with the strongest possible conviction: ' In fact the great principle which seems to underlie success in the credit associa- tions of " small folk " is that of self-help ; credit cannot be successfully given to such folk by large institutions, and credit, which is the result of philanthropic or state effort, is apt to be either abused or abortive; it is abused for it comes in the guise of charity, and is received as a mere surplus of the wealth of others which they can easily spare, with similar subsequent grants beside; it comes from a general and indeter- minate fund, mhich is popularly supposed to be inexhaustible. Similarly, when it is supplied by government it is not only supposed by the borrower to be from an in- exhaustible source, so that no one will be harmed if it is not repaid, but it is necessarily surrounded by the lender with so many rules and formalities, that it cannot reach those whom it would benefit. Above all, such credit does not educate; it does not teach the borrower that all capital comes from saving; yet without this lesson credit is danger- ous, credit is only safe when it brings with it the lesson that there is no royal road to wealth; the mortgage of the unearned increment, the cheap loan from the philan- thropist, the government takkavi at charity rates, teach the ryot nothing, while tending to beget carelessness and improvidence; it is the painfully saved surplus from labori- ously won earnings that is the true educator. " If he is to value a gift he must be his own benefactor, if he is to deal scrupulously with it he must be its guardian." (Wolff.) " The only true secret of assisting the poor is to make them agents in bettering their own condition." (Archbishop Sumner.)' (p. 136.) 142 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 SAFETY AND ITS RESULTS. The question of safety is one of such paramount importance that it never fails from the first to challenge the closest attention. And it is only right that it should be so. But upon this point a great many labour under 'strange delusions. One thinks that a certain set of rules or restrictions are the only proper safeguard and would incon- siderately apply them to each and every case without discrimination. Because they may have proved beneficial in a particular instance, it should be so everywhere and always. The nature and working of a system should always be taken into account, as it will be seen stated by Mr. Nicholson. Does co-operative credit as generally known to-day offer reasonable safeguards in ts present form of organization? The experience of more than half a century of continuous success proves the affirmative, and it is upon this result that the following opinions are based. After having enumerated the safeguards evolved by practice, and that have proved most effective, namely, the election of members, credit confined to members, indication of the intended outlay, borrowers bound under the severest penalty to invest as indicated, borrower to find securities, limitation by the general assembly of members of the amount that can be borrowed by an individual, the supervision of the board of credit and the board of control, and many others that could be mentioned, chief among them being the fact that the general meeting of the members is supreme, and can be called easily in a day's notice, constituting the co-operative credit association the most demo- cratic body that can be found, whilst in the speculative companies the directors are everything and the shareholders mere figureheads, after having quoted the very signi- ficant words of M. M. Ferraris, late Italian Minister of Posts and Telegraphs, and himself a very active founder and leader of co-operative banks, ' it is inconceivable how a co-operative bank, properly managed, can go wrong,' that is according to the common-sense rules known by everybody and that everybody can see that they are com- plied with, M. Wolff says : ' By such means as those described, a system of giving credit has been built up which has in practice approved itself absolutely safe, while at the same time making borrowing practically easy, though, so to call it, theoretically difficult. As good as no money has been lost by this way of lending.' (Co-operative Credit Banks, page 30). And further on, page 40: ' This council of supervision is a most essential feature of the bank, as indeed a controlling body has been found to be indispensable and most useful in all forms of co-operative organization. Wherever one of these village banks has been led into bad practice or loss, the fault has generally, if not invariably, been found to have lain in insufficient control. Therefore it may confidently be said that a good council makes a good bank. The council, which ought to meet at least once every three months, has a good deal more to do than merely audit the half-yearly or annual balance sheet. It is to constitute a real and effective check upon the committee of management, to re- view all that the committee does, inquire whether it has granted loans without proper investigation or without proper security, whether it has been careless in any invest- ment, or otherwise remiss in its duty. The council, like the committee, is expected to present a report to the general meeting every year or half-year, and if the com- mittee has in its opinion acted in opposition to the interests of the bank, and not paid proper regard to its remonstrance, it will as a matter of course have to report the case to the general meeting for adjudication.' And on page 399 of ' People's Banks ' : ' But, generally speaking, if we address ourselves to the work in the right spirit, it is bound to succeed among ourselves as it has succeeded among Teutons, Slavs, Latins and Turanians, under every variety of European sky, under the most diverse conditions, bringing good wherever it has taken root, raising the poor where other ADDENDUM H3 APPENDIX No. 3 educating methods have failed, teaching habits of business, thrift, sobriety making the drunkard sober, the spendthrift saving, the never-do-well well-conducted, ^ turning the illiterate into a penman and at the same time stimulating, with its magic wand, as M. Leon Say has put it, commerce, industry, and small husbandry, substituting plenty for want and happiness for misery, raising, enriching, emancipating the work- ing classes, and flooding the whole country, economically speaking, like the waters of the Nile, with fertilizing influences. Here is a work, in view of the magnificent results attainable by it, for the benefit of millions of fellow-countrymen, which ought to have attractions for statesmen, philanthropists, and ministers of religion. Please God we shall some day see a rich crop growing up from the seed now being sown, and our country the richer, the happier, and the more contented for its growth. Tor applying the words of M. Ernest Brelay, we may truly say I think my narratives must have shown that that the resources of this beneficent creative power are ' illimitable/ Mr. Nicholson very aptly says, on page 47, after having referred to the above enumerated safeguards: i Restrictions, however, must not, in general, be either legal or executive, but social; they must proceed from the people themselves through associations, which, imbued with a true economic and mutually helpful spirit by their best members, will gradually develop not only throughout the associations but in their individual mem- bers, the habits of prudence, foresight, thrift and productive outlay. It is because banks have hitherto been regarded merely from the point of view of capitalists and shareholders seeking for profitable placement of their capital, that the security of the loans advanced and the stability of the bank have been the points primarily aimed at ; the present proposals aim at establishing and safeguarding the security 'of the ryot first and of the loans afterwards ; men are of more account than money, and, after all, loans are safe just in proportion as the borrowers are prudent. Hence in the proposals to be made, the action and influence of the banks on men, and the controlled use of credit, will be discussed along with the usual consideration of cheap and facile credit to the borrowers and of the security possible to the lender.' But apart from these safeguards, there are others of quite a special nature, safe- guards that are to be found in the very nature of the institutions under review, and which it would be most unjust to ignore because they do not belong to the class just above referred to, or because they are not included in the alleged infallible set of rules spoken of and which are always present in the mind of unreflecting prejudiced individuals, and these additional sureties are to be found in the honesty, good conduct, industrious spirit of members, which qualities can always be easily ascertained, because the society operates in a very small territory. This safeguard has been found reliable in almost all, if not all cases during sixty years of experience in various countries and different peoples. And Mr. Wolff was justified in saying, speaking on this subject, page 27, ' People's Banks ' : ' For we find the commissioners appointed by the United States government to inquire into their practice and success reporting that they have demonstrated beyond doubt that, with equal prudence and intelligence on the part of the lender, loans to the industrious and economical poor are as safe as those made to any class whatever of the rich/ Again, on page 18: Sir Robert Morier says : ' The skilled artisans of a community are as good a sub- ject for a mortgage as the steam mill which supplies it with flour, or the broad acres which furnish the corn for the mill. All that is wanted is some equally safe means of assigning to the creditors a lien on the former as on the latter/ That is the very point. In practice, or course, the problem did not in every case take this extreme shape; for, as in the case of the Iberian peasants, there was often something* at any rate, in the borrower's possession, which might serve as security a holding or a house, or some chattels/ 144 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 On page 204, referring to this point again in connection with the limited resources of the Italian people's banks, and how they were to procure the necessary funds, Mr. Wolff states : 1 With, their limited means, how were they to accomplish this ? M. Luzzatti had his answer ready, but it staggered his countrymen by its " Utopian " boldness the bank were to " pledge their honour " to " capitalize their honesty." The great source of their credit was to be their " high reputation for honesty and solvency la grande riputazione di onesta e di solidita." Put into ordinary economic language, of course, M. Luzzatti's rather high-flown phrase does not mean that by the touch of some thaumaturgic power the members of the banche populari were miraculously to be turned into saints or angels, but merely, that it was to be made their direct interest to be. honest and punctual, and to see that their fellow-members were the same.' And the success of these credit associations for forty years now is a striking evi- dence that Luzzatti was right in his view. The same argument applies with equal force to the individual members. It is a question of prudence and of education. The same safeguards and rules of prudence, which I will explain fully later on, have been applied everywhere in the management of these co-operative institutions, and what has been the results? Taking Germany for example, M. Peters writes that in 1891, for his book was published in 1892 : ' The deposits of the people's banks in Germany amounted to 534,000,000 francs ($103,062,000); the deposits of the Bank of France were only 852,570,000 francs ($164,546,010) ; of the Bank of England, 718,375,000 francs ($138,646,375) ; of the Bank of Germany, 525,000,000 francs ($101,325,000) ;. so that, of the popular banks of Germany, 886 out of 2,200 deposited more money than the Bank of the Empire. Making a fair allowance on the average of the banks not reporting, the total popular bank deposits would exceed those of the Bank of England, and without such allowance they would be greater than those 'made in the Bank of France, if the 365,000,000 francs ($70,445,000) of state funds are deduced.' And all those figures could safely be doubled for 1906. Equally striking results could be shown for Italy, Austria, Hungary, &c., for there the system is worked on the same basic principles. CREDIT AND THE POOR. Having examined the economic situation in England, and having made a survey of the results so far obtained, the unfavourable condition under which the poorer classes are labouring, Mr. Wolff does not hesitate to express the following views on this subject : t Credit is now the Monopoly of the Rich. ' However, all this profitable and useful banking, all this fructifying dealing in credit which, to the benefit of the community, multiplies the producing faculty of money ten, twenty and fifty-fold, has thus far remained restricted to only one-half of the nation the richer, it may be, but certainly the smaller half, the half which con- tributes less directly to material production, the half to which the productive employ- ment of its powers, the turning to account of its opportunities really are of least im- portance. Credit and banking are still so capitalist an authority as the Times has on this point fully endorsed my own statement "entirely the monopoly of the rich." People sometimes talk of our being " over-banked," so remarked the same newspaper on a subsequent occasion ; we are " over-banked," so in effect it goes on, in some- quarter; banking and banking credit do not exist. 1 Why are the Poor Denied it? ' Why are the poor, who, to quote the words of " the father of Italian co-operation," Signer Vigano, need credit most, and in whose hands, inasmuch as they are directly productive hands, it is certain to fructify most, so sternly denied its use? A little- credit would to them often be a real Godsend-temporal salvation. With its help idle= ADDENDUM 145 APPENDIX No. 3 arms might be procured employment; with its help that absolute and often abject dependence of working folk, which compels them sometimes to accept terms to which only " their poverty and not their will consents," would disappear ; with its help that burden, now often crushing to the poor, and shutting off all hope of a rise in life, the burden of obtaining by driblets, the necessaries of life, at exorbitant prices, would be materially lightened. For, as regards, more in particular, the last-named point, Sir E. Chadwick has shown that the possession of ready money would materially reduce it in not a few cases, by as much as 50 per cent. The surplus energy of the working classes, the producing power of the feebler members of their families, which are now almost wasted, might, in a garden, in a poultry yard, or else in a supplementary little workshop, be converted into a direct source of profit. To a judicious, industrious and skilful person the ladder which leads up to. the higher position in life would by such means be made considerably easier of ascent. It is unnecessary, surely, to quote specific instances as of the petty tradesman, who, at the price of only ten weeks 7 hire, may purchase his barrow, his donkey, or his horse and cart, out and out, which he now hires all the year round; as of the workingman who with the help of a little capital is enabled to set up successfully as a tradesman; as of the poor woman, who, becoming possessed of a sewing-machine, may earn back in little time its purchase price out of its own work; of the small peasant, who makes his cow, bought with borrowed money, repay its cost in a year, and leave the calf, the valuable manure, and itself, in calf once more, over as a free gift. Instances of the sort will no doubt occur in plenty to anyone who chooses to take the trouble to think about the matter. How would the use of a little money borrowed at a moderate rate of interest help those poor East End working- women, who, as one of their leaders told me only the other day, are too destitute even to practice co-operative supply ? How would a little borrowed capital have helped those poor " sweated " cabinet-makers, who, as the Royal Commission Inquiry showed, were sometimes on Saturday nights paid with cheques which were, on Saturday night, to be converted into money only at a heavy sacrifice ? How is it that that " little borrowed capital " is in such cases not forthcoming otherwise than coupled with conditions which may take away all its utility, be it in the shape of usurious interest charged, be it in that of an embarrassing obligation incurred, with labour and begging often absolutely thrown away, if the answer be a refusal ? ' They have no recognized security to offer. The answer is simple. The poor folk of whom I am speaking obtain no credit because they have no security to offer, such as a bank would accept. There are people who appear to consider this to be a wise dispensation of Providence, who hold that poor folk ought not to be able to bank or to borrow, and in support of this kind contention quote the proverb which they never apply to their own case : "Who goes a-borrowing goes a-sorrowing." 'Credit is not necessarily demoralising to the poor. Now I would ask: Is this really a straightforward arguinent worthy of the nineteenth century? Was it Provi- dence, by the way, which first suggested the machinery of credit for the rich? And who is it that is justified in making a distinction between those who are entitled to the use of credit and those who are not? Certainly not those who now make it the very people who enjoy a monopoly of credit, t othe prejudice of those who do not. As for the demoralising influence supposed to be concealed in credit, do we not, all of us, know that, as Leon Say has again and again insisted, there are two kinds of credit, essen- tially different one demoralising, the other educating ; one dangerous and leading into mischief, the other largely creative and purely beneficial. To withhold business-like credit from the poor on the ground that it might prove dangerous to them, and yet drive them perforce into the usury of shop-credit, which often sucks the life-blood out of them is, surely, the height of hypocrisy. 'The time for invidious distinctions has gone ly.. .Credit must be " Democra- tised " like everything else. The time has assuredly gone by for making a distinction in such matters between rich and poor. All our institutions, all our habits, all our conditions of life, have become democratised. It is nonsense to pretend that working 146 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 and small trading folk are not competent to discriminate between legitimate credit and illegitimate, to practise the one and avoid the other, just like the rich seeing that in their friendly societies, their trade unions, their co-operative stores and work- shops, they give proof of business capacity and administrative ability of the very highest order, such as no large manufacturer or merchant could surpass. Let the ". superior persons " who deny to working folk the skill required for doing business for themselves, have a look at the two co-operative wholesale societies, turning over their millions of money, maintaining a flotilla of steamers of their own to carry their goods to and from all quarters of the globe, and constituting two of the largest business con- cerns in the United Kingdom ! Let them have a look at the Board of the Co-operative Union which administers the affairs of a community so large and so wealthy that Lord Kosebery has not without good reason called it. ' a state within the state.' Management could not be more perfect or more business-like in the best conducted capitalist es- tablishment, or the best ruled government department. And yet the managing com- mittee consists in all these cases entirely of bona fide workingmen, whom the manage- ment of co-operative stores has educated to business and to administration, as the practice of banking would infallibly educate their class-mates to banking. ' There can be no question that the working classes, like the employing, need credit. Loan societies, self-help societies, friendly societies with lending powers already actu- ally provide for it on a very small scale, in a very temporary, makeshift, and inade- quate way just enough to indicate incontestably the existence of a want. But that is, unfortunately, only for the few. For the mass of the working population the pawnshop and the petty usurer's office still constitute the only available credit banks necessary, in the opinion recently expressed by a county court judge, under present conditions even beneficial, but cruelly unfair, and economically unsound and duinous. 'Juxtaposition of excessive abundance and need. In this year of grace 1898, surely we may put aside the' obsolete argument that poor folks' credit is not wanted. However, that does not help us over our difficulty that such credit does not, as a matter of fact, exist. Our present banking machinery, cast in a purely capitalist mould, is absolutely not to be adapted to the acknowledged need. Oddly enough, in respect of this matter, we find ourselves placed between two striking extremes equally embarrassing. There is need on one side, and there is excessive abundance on the other money ' overflowing in the coffers of the bankers/ money so plentiful that you cannot get money for it.' These are Lord Salisbury's words, and no one will dispute their truth. Here, one would think, are the elements for striking a balance ready to hand. However, our economic machinery is still evidently so imperfect that two oppo- sites, which might usefully correct one another, cannot be brought into salutary con- tact. There is no touch between them, no common ground on which they could meet, no exchange in which they might bargain for one another's services they constitute practically two worlds separated by an untraversable abyss. 'Co-operative Credit Banks as a remedy. It is this abyss which people's banks are designed to fill this gulf, the "dark stream of distrust," of which Lord Salisbury speaks, " across which they are intended to cast a bridge, placing need in communica- tion with abundance, and at the same time devising safeguards, sure and effective safeguards, against improvident credit, and making credit at once productively and educationally useful." To quote the apt words used both by Leon Say and by M. Leon d'Andrimont, the originator of people's banks in Belgium, people's banks were created to " detmocratise credit," to make credit and all other banking facilities readily accessible to small folk, to whom the ordinary avenues leading up to such benefits are at present closed. That is their distinctive object. They are specially called upon to take up and practise the small business which, just because it is small and there- fore little remunerative and very troublesome, other banks excusably elect not to carry on. They are, in other words, to provide banking " for the million " f or poor people, down to the very humblest, so long as these can show themselves to be de- serving of credit, not as a matter of favour, but as a matter of business. To this end, ADDENDUM 147 APPENDIX No. 3 to do this successfully, freely and safely all their efforts must be bent. And, to gether with facilities for banking, they must at the same time seek to provide a bank- ing education for those who are at present unskilled in the matter, coupled with self- regulating restraints, the intended office of which is, while encouraging legitimate, to shut out improvident borrowing, to supplement the useful instrument provided with an effective protective guard/ THE NATURE OF THIS CREDIT. And to show that it is true, l that credit is not necessarily demoralizing to the poor/ as Mr. Wolff has just put it, it is well to quote here the opinion so ably ex- pressed by Mr. Nicholson : 'Thrif t, not charity, base of credit,' and this authority ex- plains his meaning as follows on page III. of his report: 1 But in this and in the following chapter on " indeptedness," it is especially sought to bring out the fact that the establishment of banks, great or small, is, per se, no remedy at all for rural indebtedness, and may indeed, seriously aggravate the difficulty; it is not mere facility or cheapness of credit that is desirable, but a safe- guarded, educative credit; a credit, moreover, based not upon subventions from the State or upon any system not thoroughly business-like in its principles, but based upon the thrift and prudence of associated members, whose savings and character attract in the ordinary way of business, abundant deposits from the saving public; it is thrift and prudence, not charity or state aid, which must be the basis of all true credit, such as will bnefit it and develop, and not enervate and paralyze a nation.. This credit is that which is being sought, and to a great extent successfully, in Europe/ Further on, he defines the nature of the credit desirable: ' But the present study is expressly confined to the remedy found in the organiza- tion of credit, a remedy, however, of almost unbounded potentialities provided that it is so prepared as to contain the alterative and tonic elements of national vigour. The mere supply of cheap capital db extra is no sufficient remedy; it would probably in- tensify the difficulty by increasing the load of debt; even the supply of such capital by the organization of credit, by the establishment of banks, is inadequate as a radical means of relief. ' It is not merely cheap and facile credit that is required ; it is a credit which must indeed be cheap, and facile in that it shall be ever at hand, but it must be credit which shall only be so obtainable that the act and effort of obtaining it shall educate, dis- cipline and guide the borrower ; it should be granted only to those who have learned to think, to plan, to save ; the method of providing it must teach the lessons of self and mutual help, and suggest the extension of those lessions to matters outside of mere credit; it must be safe not merely in eliminating the dangers of usury, but in being controlled, heedful, and productive. Hence, while studying credit and preparing for its organization, the object to be borne in mind is not the introduction merely of cheap capital or of banking credit, but of that system which shall most readily and thoroughly develop essential national qualities ; those systems of banking are to be preferred which tend in themselves to this result, and the efforts of the state whether in its legis- lative or in its executive capacity, should be directed towards the promotion of such systems. Not joint stock banks merely, still less state banks, or banks financed by the state for the mere issue of capital, but mutual credit unions, are the desideratum; co-operative societies where the isolated learn the value and powers of association, where the ignorant are taught the lessons of business, the reckless learn needfulness, % thrift and prudence, the idle and intemperate return to industry and sobriety ; where the prudent, the sober, the skilful; the well-to-do unite with the poorer and weaker brethren in an association of mutual help and insensible self-development/ (Page 4.) ARE CO-OPERATIVE CREDIT ASSOCIATIONS RIVALS TO BANKS ? This question, sometimes asked, ooks so ridiculous to me who knows the essential differences between both, that it seems almost useless to take the trouble to answer it. 148 INDUSTRIAL AND CO-OPERATIVE SOCIETIE^ 7 EDWARD VII., A. 1907 It is a question which will never arise after experience has proven here as elsewhere, to everybody, that these associations are not rivals but helpers of banks. Their very nature forbids such a query. Their dissimilarities are so striking, their functions in the economic world are so removed one from the other that one who has examined even superficially the subject cannot have the least hesitation in answering negatively. It may, however, be desirable to show by opinions and facts that there can be any doubt upon this point. In his ' Co-operative Credit Banks/ Mr. Wolff states : ' Co-operative are no Rivals to Ordinary Banks. From what has been said it must have become clear beyond a doubt that people's banks cannot in any wise be taken to be entering the lists as opponents or competitors to other banks. All appre- hension on that score should at once be dismissed. In their own interest, indeed, peo- ple's banks should abstain from attempting to compete with other banks. Such com- petition would spoil them. And they will have need of othe banks, with whom, ac- cordingly, they ought to study friendship rather than rivalry. In truth, people's banks are not only not rivals to other banks, but directly benefactors and feeders, school- masters for the poor, carefully training to banking habits those who at present do not bank, and, therefore, do not know how to bank ; guides who lead small folk through a humble avenue into the great banking market, in which the great banks are the dealers, and from which in the end all money must be drawn. Thus in point of fact they provide new business for other banks which without their assistance would be entirely lost to them.' (Page 12.) And on page 22 : ' In Italy, when people's banks were first formed, the capitalist banks and the sav- ings banks had the good sense to recognize that here was a powerful and useful ally, an auxiliary, brought into the field, whom it would be to their interest to support and second, because he would in his turn help them.' Moreover, in his ' People's Banks,' Mr. Wolff writes: ' They resolved to trust him. In M. Luzzatti's words, they actually " vied with one another,' in their efforts to take the new people's banks under their " maternal guard- ianship. " " In doing so, " M. Luzzatti frankly insists, in his annual address of 1889 " they have only consulted their own interest." But all the same he gratefully acknow- ledges the most opportune assistance received. ' The Banco di Napoli offered to discount bills at 1 per cent, under the ordinary bank rate. The Banco di Sicilia was ready to find four-fifths of the capital required for starting even a considerable number of banche popular! within its own district. Under the law as it stood that proved impracticable. But the good-will from which the offer proceeded remained available for other methods. On the face of it, if the popular banks wanted to exist any length of time, they must be honest. And M. Luzzatti and his friends had too much at stake in their reputation to play recklessly with their new instrument of credit.' (Page 209.) On page 94 Mr. Peters comments thus upon this very point: 'Monsieur Luzzatti, the present Minister of Finance, has introduced into his country the system of small co-operative share banks whicE receive deposits, grant loans, and discount bills solely on behalf of their members. There are in Italy more than 700 co-operative credit societies, possessing a capital of 66,000,000 lire ($12,738,- 000), and having deposits to the amount of 300,000,000 lire ($57,900,000). There is scarcely an agricultural centre of any importance without a popular bank or a branch of such an institution. Their action is powerfully seconded by the aid lent them by the savings banks in the great cities, which have been developed more rapidly than in any other country. Though seeking to place their funds where they will be safe, easily collectible, and sufficiently productive, these banks make it an object to pour back into the economic circulation the capital collected by saving. A part of it is in- vested in government bonds and in provincial and communal securities, while another ADDENDUM 149 APPENDIX No. 3 part serves to support the small lines of trade and agricultural industry by discount- ing bills and notes running for long terms. Thus the one savings bank of Milan, which has a capital of 60,000,000 lire ($11,580,000) and deposits exceeding 300,000,000 lire ($57,900,000) comes to the aid of petty trade by accepting the paper of the popular bank (of the same city) which makes loans to agriculture and the small industries. The notes of this (popular) bank, once indorsed by the savings bank, are readily ac- cepted by the national bank of Italy. The same course is pursued in the rural dis- tricts where agricultural credit and commercial credit interact in the same manner. Thanks to the rapid extension of these popular banks, all solvent cultivators find similar facilities of credit to those enjoyed by the merchants in the cities, and that without being held to a three months' term/ And it may be added that this help on the part of the large banks to these asso- ciations has yearly increased since, showing therefore that experience has confirmed the opinion entertained at the start, and that bankers have had the proof that these co-operative societies were beneficial rather than hurtful to their business. The * Banque de France/ the largest financial institution in the world with the Bank of England, is and has long been a powerful help to these small associations by discount- ing their bills. Mr. Reginald Murray, manager of the ' Commercial Bank ' of Calcutta, in an article contributed to the London Bankers' Magazine upon the inquiry and report of a royal commission appointed in 1901 by the Governor General of India, Lord Curzon, for the purpose of investigating the desirability of introducing these people's banks in that country, concludes by writing the following very significant lines : ' The proposals now under consideration will not for some time directly affect the operations of the ordinary joint-stock banks, but in proportion as co-operative societies accumulate wealth by means of extended credit they will tend to increase the volume of inter- changeable commodities, and when that happens the ordinary joint-stock banks are bound to derive benefit, both in the form of deposits and custom/ Surely a banker of such eminence as Mr. Murray would not have expressed such a strong conviction if any doubt to the contrary had ever arisen in his mind. THE DUTY OP THE STATE. A very important question is the one relating to the duty of the state or gov- ernment in connection with this system of organized credit. Without going as far as advocating direct aid towards these associations for I do believe that such grant would be a fatal mistake, and would in Canada, par- alyze the energy necessary to the success of co-operative credit the duty of the gov- ernment is very well defined by Mr. Nicholson in the following lines: ' But the state must assist the development of organized credit. The functions of the state in the matter of rural credit are considerable; it must remove all disabilities and obstacles which prevent lender and borrower from meeting on fairly equal terms ; it must stimulate competition with the money-lender by suggesting and favouring the establishment of credit associations of various classes; it must legislate for the due formation and management of such associations, with a special leaning to co- operative associations as stimulative of essential national qualities; it should grant certain privileges, which cannot be safely entrusted to private individuals; it should provide for efficient supervision; and it may grant some moderate subventions, either as working or as mere starting funds/ (Page 24.) Coming back on this point and insisting with great force on what the state should do to encourage the organization of such credit, he says : ' The province of the state, at least in the present century, is not that of pro- viding credit; its duty is to favour the establishment by the people themselves of a system or systems which shall provide facile and safe credit for the rural classes. The true office of the state is to remove all obstacles which stand in the way of organizing 158411 150 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 such credit, whether they are popular obstacles .such as those of ignorance, isolation and improvidence, or fiscal, legal or executive obstacles.' (Page 38.) And in the next page he explains his view more fully by stating: ' It is the duty of the state in all matters affecting the credit, thrift, providence and property of the poorer classes to take special precautions by legislative and ex- ecutive supervision that such classes shall not only maintain their stability and in- dependence, but shall be expressly stimulated and encouraged to take steps to provide, through self and mutual help, the institutions which shall furnish credit, promote thrift, develop habits of providence, and safeguard property ; ' aider a f aire,' not ' laisser f aire ' is the true method ; true freedom of action depends not upon the abstention of government from interference, but upon such interference as shall secure freedom of action, and the certainty that each man shall be able to reap and secure the fruits of his own industry. ' (Page 39.) The Paris International Congress of 1900 has pronounced itself upon this point and has done it in a clear and unmistakable language: ' The legitimate role of the state, in this instance, is confined to assisting the de- velopment of popular associations of credit by means of liberal legislation, to encour- aging, even by means of subsidies, the spread of co-operative principles and advantages, to avoiding in its political economy all that might shake the basis of such associations : private initiative, administrative autonomy, responsbility.' NO PHILANTHROPIC AID. I hold that direct state aid would be here a fatal mistake because it would weaken the sense of self-help and responsibility on the part of the members of such associa- tions by providing them with funds which shall always come from thrift, not from the paternal providence of the government. For the same reason, I would consider phil- anthropic aid as disastrous as the other. Experience has demonstrated that that view is well founded. Mr. Wolff, in 'People's Banks,' goes into the question, and by ex- amples of a very striking character proves the evils of such aid, and its utter inability to produce any good results. ' It is interesting,' says Mr. Wolff, t to note the difference in the fate which has befallen, on the one hand, genuine co-operative loan institutions, supported and officered by those for whose benefit they are intended, and, on the other, loan institutions of a different type, be they official or philanthropic, however well conceived and organized. ' One case in point is that of Alsace. The German government, on taking posses- sion of the newly conquered province, found popular credit unprovided for, and at the same time, millions of marks, either savings banks' money or else communal funds, lying idle in its tills. With sound judgment, as it appeared, and great thought, it organized popular advance banks, by~ which such available moneys were to be lent out to the peasantry and other small folk on liberal terms. Every precaution was taken; yet the practical effect proved next to nil. A few years ago Herr Kaiffeisen planted one of his co-operative loan banks on the same ground. Within five years that one multiplied to seventy-three. In 1892, when I visited M. Chevreton, the chairman of the Provincial Committee, at Saint Hippolite, there were 126, all thriving, all doing a large business, alike in granting loans and in taking savings. Since that time the number has been very largely increased. Never had grain of seed fallen on more fruitful soil than that on which the official variety had barely germinated. 1 Something very similar has happened in Italy. In 1869 the Italian govern- ment being anxious, like its neighbours in Erance and Belgium, to provide small agricultural cultivators with cheap and easy personal credit, by a special law author- ized the formation of lanche agricole, very similar in constitution and practice to the French comptoirs d'escompte. In 1882, of the thirty odd "handle so established, all but nine had collapsed. Of those nine only two were doing any business to speak of, and that, as it turned out, only owing to special circumstances acting in their favour. One would have thought that in that district surely there could be no ADDENDUM 151 APPENDIX No. 3 demand for credit. Yet, scarcely had Commendatore Luzzatti's lanche populari set up their tables on the same seemingly barren soil but business floated to them from all sides and they grew in a few years to most successful establishments. ' In Berlin, where the late Emperor William's money granted in 1865, on Prince Bismarck's urgent recommendation, to endow socialistic associations of the Lasalle type proved a hopeless waste, and where those philanthropic loan banks already referred to had to close their doors for want of business; and in Thuringia, where the banks supported by the various small Crowns accomplished very little, the credit associations established by Schulze-Delitzsch have found a most ready and favour- able market.' Further on, he adds: ' From all these instances, and more which are on record no doubt they might be matched in this country it seems unmistakably evident that institutions like those now contemplated, formed to assist poor people with money which is to be well expended, and honestly repaid, must not, if they are to be of real benefit to the bor- rower, to promote useful outlay and thrift and honesty, come to him like little Pro- vidences from outside, with a strange face and a condescending air Providences whose gifts cost him nothing, and, for aught that he is aware of, may cost no one else anything, and may be repeated ad libitum but must be his own creation, raised up, as Commendatore Luzzatti, the founder of the banche populari, puts it, " by a heroic levy on his daily wages." If he is to .value the gift, he must be his own benefactor; if he is to deal scrupulously with it, he must be his guardian. The rich man's dole, coming as from a rich man, is held in comparatively slight estimation, as issuing from a full treasury in which it will not be missed. Hence those ruinous losses, by rep'eated default in the French philanthropic funds founded by the state, or the Emperor or the Empress. ' (Page 26.) ' The Emperor Napoleon III tried his hand at such beneficient work. First he created a Caisse d'Epargne d'Escompte, endowed with a million of francs, of which he himself provided one-half, which was to advance funds more especially to productive co-operative associations. As it turned out, the rules had been so stringently drawn that no borrower could be found willing to comply with them, and the institution died without having done any good.' (Page 20.) And Mr. Wolff concludes as follows : ' There were no co-operative philanthropic lending banks in many places in Ger- many before Schulze-Delitzsch and Raiifeisen entered upon their benevolent career. The late Duke of Saxe-Coburg the father-in-law of our Queen more especially, had been careful to found some such in his dominions at Gotha, at Ohrdruff, at Zelle, at Ruhla, and elsewhere. But, nowhere did these capitalist establishments accomplish any real good.' (Page 21.) SURETIES FOR LOANS. Apart from what has already been stated and from the valuable guarantee resulting from the local nature and working of these associations, there are other sureties to in- sure the loans, some of which should be mentioned here. There is the watching of the loan, that is the use made thereof by the borrower. In any other system of money lending this is no direct part of it. Once the lender is satis- fied about the security given, he cares very little for the rest, private money lenders very often being even desirous to see the borrower squandering the funds raised by the loan in order to take hold of the property or goods or other value serving as guarantee. In a co-operative association such a desire cannot exist, because it would be directly antagonistic to its very object and interest. Nobody could possibly hope to benefit by it, so measures are taken to watch closely the borrower in this respect. It was this feature that induced the Duke of Argyle to write: 'Your system of strict payments and watching the loan is admirable.' And this watching can be effectively done within the immediate reach of every interested member. 152 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 Moreover, sureties must be found, and upon this important point, Mr. Wolff says in ' Co-operative Credit Banks,' page 29 : ' And our man will not receive his loan unless, over and beyond all this, he finds security sufficient to satisfy the managers of the bank. That security will, in new because the association operates in a locality or a very small area, under the eyes and banks, have to be what it can. As a rule it consists in sureties. There are cases in which a man's own engagement is accepted as sufficient. But in the majority of in- stances the borrower is asked to find sureties one, two, or more, according. to the circumstances, as many as are deemed sufficient to secure his loan. And should one or the other of these sureties be found to deteriorate in quality while the loan is out- standing, the borrower will be called upon to make good the deficiency by procuring another/ The character of the borrower stands as part and parcel of the surety looked for and accepted by the association, for no such credit society would, in the first place, elect as member a notoriously bad character and much less should it ever consent to lend money to a doubtful one. In my own personal experience loans have been positively refused on that very account, although the guarantee offered was good from an ordinary money lender point of view. Not only is ability to reimburse being con- sidered, which is insufficient in more than one instance, but also honesty, which is worth much more than one who pretends to know would imagine, arguing upon his own very limited knowledge, without practical experience of any sort, except the theory gathered up within the four corners of an office closed to such dealings. Ability is by no means the only thing to be considered, but most prominent is honesty, and upon this, I will quote M. Wolff, ' Co-operative Credit Banks,' page 20, who writes with his eyes open upon thousands and thousands of facts all over Europe : 1 In a co-operative bank he borrows directly from his own class-mates, from those among whom Providence has cast his lot, those for whom he has a strong fellow-feeling, those who have the making and the marring of his worldly happiness in their hands. The " great effect upon his moral habits " is accordingly pushed forward to a much further point. Our capitalist bankers make a practice now of lending to rich men rather upon " character " than upon security. A poor man's " character," placed before the tribunal of his daily companions, is really within its proper limits, of even more constraining force, since in his own little restricted world his " character," judged by the men among whom he lives, and from whom he can scarcely get away, is his little all-in-all.' And this very interesting paragraph telling of a fact that has come more than once to my own knowledge : ' Commendatore Luzzatti has rightly called co-operative credit " the capitalization "of honesty." Personal credit makes it its aim to help the borrower without embarras- sing him by taking from him something which he may want, or binding him to do what must be very inconvenient, or by spoiling his credit by pillorying him in the register of bills of sale. And it is the most educating, because it teaches people by the strongest argument available, that is, the argument addressed to the pocket, to be honest and punctual, in their own interest. It will be seen that security fully as valu- able and constraining as any pledge or bond could provide may be obtained under the system of personal credit.' And the results in over forty thousand of such co-operative credit associations after years of experience, and millions upon millions of dollars loaned, confirm that contention in every particular. ADAPTATION TO THE WANTS AND CIRCUMSTANCES OF THE PEOPLE. One point that is of special importance to insure the success of such associations is to adapt them to the wants, and circumstances, and even wishes of the people. To try by legislation to force the future co-operators to adopt one way in preference to ADDENDUM 153 APPENDIX No. 3 another would be to invite failure. This has been well understood wherever a law has been passed having the organization of co-operation in view. Whenever the law has not been of a liberal character, co-opsration has suffered and more or less lan- guished on that account. It is therefore necessary to grant full freedom of action to the interested parties, nobody being likely to suffer but themselves, if they make mis- takes. This question is examined by Mr. Peters, and his opinion is as follows: ' The only special condition by which co-operative enterprises needed to be differ- entiatd from others of a fair and worthy character was that, in their organization, methods of procedure, and objects of pursuit, co-operative associations should be judiciously adapted to the needs of the poorer classes of society, for whose especial benefit they were designed/ (Page 10.) Further on, he adds: 1 They differ among themselves in many particulars, the most important being that which relates to the degree of liability assumed by the members, but in general they agree in the possssion of characteristics which adapt them to the uses of the work- ing classes and entitle them to be regarded as co-operative in the most essential and important elements which enter into the special signification of that word.' (page 10.) And on page 13 : ' For example, institutions that would be adapted to the coloured tenant cultiva- tors of the South, migjit not be suited to white agricultural tenants in the North and West ; while such as are adapted to the last might fail to meet the requirements^ of the poorer class of agricultural proprietors. In any attempt to organize an association in a particular district the prevailing need, the habits, characteristics and circum- stances of the people, and in a district with a large foreign population even the nationalities most largely represented would have to be duly considered.' And according to Mr. Peters, ' there is, however, a vast field in our country for co-operative credit. ' Further on, he adds: 'When a plan is presented which, in its adaptation to the wants and circumstances of those for whom it is intended, has within it the germs of a vigorous life, the people are not slow to adopt it and improve upon it in the light of their experience/ ' Most of the foreign associations have had to adapt themselves to the needs of a poorer class than would be found in any considerable number among corresponding elements of our own population. And in this connection it is of interest to observe that the capacity for successful association has been found to co-exist not only with deep poverty, but also with extreme illiteracy. Some of the Italian provinces in which the popular banks are especially numerous, hold a very low rank educationally, as is shown by the official statistics; and Russia would undoubtedly furnish us some strik- ing examples on the same point/ The idea of forcing a theory upon an unwilling, public has been tried in Belgium by M. d'Andrimont, and failed to a very large extent. In his ' People's Banks, ' Mr,. WoliT says : ' Facts have proved too strong for him. Unlimited liability showed itself as little* acceptable to Belgians as it was to Italians. At the outset it was accepted only be- cause its significance was not understood. When in one of the banks, some years lately it was proposed to limit the liability to I think it was fifty times the value of the share members, who had up to that time made themselves answerable for the bank up to the hilt with absolutely the whole of their possessions, shrank back in alarm, declaring that they could never accept so heavy a responsibility. In respect of other points, no less, M. d'Ardrimont's close adherence to his German model has for some time stood in the way of entire success; For a long period the movement dragged heavily. Some banks grew up rapidly, but their number and their business remained 154 INDUSTRIAL AND CO-OPERATIVE SOCIETIES^ 7 EDWARD VII., A. 1907 stationary, with one or two added or withdrawn every year sixteen, seventeen, then fifteen representing a constituency of 10,000 or 11,000, keeping very solvent, doing a fair amount of business in a very business-like way, but never really extending their sway or becoming genuinely popular, even among those teeming millions of the most populous and the busiest little country of Europe, in which ministers and economists like M. Graux et M. Beernaert never weary of calling out for some popular form of credit, more especially agricultural. How is it," plaintively asked M. d'Andrimont, as president, at the congress held in 1888, " that having been founded nearly twenty- five years ago, the People's Banks have not grown more numerous?" The French economist, M. Limousin, in agreement with M. Julius Schaar (director of the Ban- que Populaire of Brussels), supplied a very plausible answer: the banks were not sufficiently " popular/' "The People's Bank," so writes M. Charles M. Limousin, in the Journal des Economises, "become in Belgium less and less popular, that is to say, less and less useful to the poorest class of the population. Soon they will have nothing that is popular about them, except the name." M. Schaar complained that " the People's Banks cannot be useful to simple artisans." ' This frank judgment may have helped to lift the banks into a better position. They have always been, in the main, well in some cases even excellently adminis- tered. But there was something about them which seemed adverse to spreading and growth. M. d'Andrimont has placed them in his country, so to speak, as a German plant put into a Belgian plot, not, like M. Luzzatti's banche, as a German set planted on new soil, there to strike root and become part of an indigenous vegetation. The tree set in the new soil, in disregard! of the conditions under which it had to live, for a considerable time just managed to keep alive, pushing on very little." (Page 288.) CO-OPERATIVE CREDIT IN CANADA. In addition to what has already been said upon the need of such a credit in Can- ada, as evidenced by the presence and the prosperity enjoyed by -the money-lenders and usurers, at the expense of a long-suffering public, can it be argued that organized co-operative credit would not be a success here because our circumstances are not favourable or decidedly adverse? This contention has been advanced against the pioneer of the idea in every country where now co-operative credit has reached a wonderful degree of success. Far from being unfavourable, our circumstances are quite the reverse. Our people are fairly well educated, the representative institutions which we enjoy have given them a keener sense of public duty than was possessed forty years ago by most of the European working classes. Surely in this respect we are far ahead of the native population of India, who have now the benefit of a law on co-operation. But let us see what happened elsewhere, in order to gauge more accu- rately our own situation. Mr. Wolff gives an account of what Signor Luzzatti had to contend with in Italy. He says: ' However favourable circumstances might in the course of practice turn out to be, in 1863 and 1864, when M. Luzzatti entered upon his crusade against usury he found himself face to face with a task of no little difficulty. He had his " plan of campaign ready." But his army for fighting it had still to be created. He cannot have been in a better position for beginning operations in Italy than would at the present day be an apostle of his economic gospel in England. There were only very few who believed in his " chimera. " The very friends who consented to join him were sceptical, and contributed their small subscriptions rather " to oblige their friend/' or " as one engages in a doubtful charity," than with any faith in the scheme. Like Schulze, in Germany, he felt himself hampered by a socialist Lassalle, one Boldrini, perpetually crossing his path and acting the Shimei by him. However, Boldrini had no Bismarck to back him up, and so his opposition came to a speedy collapse. A more serious hindrance was to be found in the backward state of the Italian law, which re- cognized no societies with unlimited capital, such as co-operative associations must needs be. Until 1883 the banche were compelled to sail innocently enough under ADDENDUM 155 APPENDIX No. 3 false colours, styling themselves joint stock companies, and altering the figure of their " limited " capital from year to year, in order to comply with the law. That helps to explain the comparatively slow progress made up to the date named. ' In spite of all these hindrances, M. Luzzatti after a little co-operative experi- ment made in connection with a friendly society at Lodi in 1864 late in 1865 decided upon starting his first people's bank in Milan. And on the 25th of May, 1866, he opened the doors of his modest little establishment in a small hired room. It was a puny little affair. The bank had but 28 for its capital oddly enough, precisely the same sum with which our Kochdale Pioneers entered upon an economic reform destined to revo- lutionize commerce. " Moi, je souscrivis 100 lires, j'ertais le millionaire de la bande." Of course they could employ no paid clerks or officers; all work must be gratuitous. But there was a good will at the back of the enterprise. " Half my heart," long after said M. Luzzatti himself, ' is wrapt up in the People's Bank of Milan. ' (People's Banks, page 214.) And that association is now enjoying such prosperity that it is a subject of admira- tion for all the political economists who have studied its working and its results. An humble beginning is not a fatal obstacle to success. Some may argue that the modern tendency of trade and industries to concentrate is such that these institutions would be useless. Mr. Wolff quotes an instance which does away with the argument. He says: 1 The Banque Populaire of Verviers ought to be of peculiar interest to us, not so much because in little time it has grown to be the largest people's bank of Belgium numbering last mid-summer 2,995 members, as because it has set up its counter in a man- ufacturing town organized to all intents and purposes like a manufacturing town in Great Britain. Sceptics in this country will insist, without looking sufficiently into facts, that we cooild not set up co-operative credit in this kingdom, because we have " no small trade.'" It is the small workshops of Liege, Milan, Leipzig, so they will have it, which support these co-operative banks, and alone make it possible for them to live and thrive. In our British towns, where industry and trade are for the most part con- centrated in large workshops and the small artisan of abroad becomes the salaried " hand " or foreman, such a thing, they say, would be impossible. Well, here is a town with large workshops only. Out of its population of somewhere about 50,000 as many as 40,000 are " hands " working in those large cloth mills and yarn factories which em- ploy 160 steam engines or more, and turn out annually above 400,000 pieces of cloth, besides yarn, clothing the entire Belgian army, and exporting at least 3,000,000 worth into the bargain. Walking in the busy streets of Verviers, you might fancy yourself in Bradford or in Leeds. Well, the Banque Populaire has set up its mensa argentaria in the midst of these shop-hands, and has gathered together more members around it than any other people's bank in Belgium. Up to 1892 the Bank of Liege, working among a population of 160.000 inhabitants, in the very home of small trade, main- tained the lead. Now Verviers has outstripped it considerably. Brussels, with its 184,000 population; Ghent, with its 152,000; Antwerp, with its 240,000; Malines, with its 52,000, all rank after it, notwithstanding that they have more small trade. It is really not the " small trade," it is the understanding and appreciating the co-operative principle which makes a co-operative bank to thrive. In its composition the Verviers bank is thoroughly popular and " democratic." There are, it is true, among its 3,000 members, 449 " rentiers," but most of these are, I believe, small men, retired from work or business. There are 446 small traders. There are 6 doctors, 26 proprietors of cafes, 33 small manufacturers, 188 counting-house clerks, 117 small cultivators, 76 teachers, 2 priests, 2 sacristans. All the rest may be described as workingmen and working women. And with such a constituency, the People's Bank of Verviers does a business exceeding in volume the business of any other People's Bank of Belgium, excepting only that of Ghent, which as I shall show, is really not a "people's" bank at all, but a co-operative capitalists' bank. The business of Verviers amounted in 1895 to 33,707,506 francs (1,348,300), as aginst 15,348,522 francs reported by the People's 156 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 Bank of Liege. Its direct lending alone (in advances and discounts without includ- ing cash credits) amounted to 6,263,545 (250,541), as compared with 3,940,746 francs in Liege. And that with a paid-up capital of only 599,000 francs (23,960). I have sometimes been asked : What do these people borrow money for ? It would be difficult to say. No account is kept of that. And by far the greater portion of the lending is done by way of cash credits, which is in truth the most useful and most educating of all forms of lending. Evidently the cash credits granted have been put to good commercial use. For in 1895, 12,705,895 francs had been drawn out and 11,636,831 francs paid in. The account is accordingly anything but " dead." And the business is so sound that, after carrying 1,941 francs to the reserve fund already standing at 70,210 francs; and 1,001 francs to the provident fund previously figuring at 116,178 francs ; besides allowing 1,500 francs to the managing committee according to attend- ances, the bank was in a position to pay to its shareholders 38,370 francs in dividend, at the rate of 6 per cent. From an English point of view, I look upon the People's Bank of Verviers as perhaps the most instructive that there is.' [People's Banks, page 292.) This and many other quotations that could be given dispose of the contention based upon concentration of trade. Those who would use this so-called argument ignore or forget the wants that co-operative credit associations are apt to satisfy, and experience shows their error. LAWS ON CO-OPERATION. The force of credit co-operation is such that, strange as it may appear, it has in most cases preceded the laws. Nothing can better show the necessity of this form of organized credit. In the inception of this movement, the legislators were perhaps justified in hesitating, considering above all the ideas prevailing then in Europe against any form of democracy. But now, especially in America, can any such hesitation be justifiable, with the object lessons that history offers us and the enlightenment it gives? "Mr. Peters says that the absence of a law has been very detrimental to the spread of co-operative credit: ' In Italy, as elsewhere, the system of co-operative banking began to exist among the people before it was provided for by law, legislation coming afterwards, in com- pliance with a popular demand ,to remove obstacles to the working and provide faci- lities for the creation and development of the new institutions. The first legal recognition of them occurs in the code of commerce of 1882, in which articles 211 to 228 inclusive were devoted to co-operative societies, including those of the class under consideration. This was eighteen years after the first societies of this latter class had been established in the country.' (Page 88.) And further on: ' One thing which is shown by the history of these associations is the large extent to which their multiplication and prosperity are dependent on the existence of ap- propriate laws. In Italy, for example, popular banks existed about eighteen years before the enactment of the new commercial code of 1882, which for the first time gave them a proper legal recognition; but at the end of 1881 there were only 171 in exis- tence, whereas during the next eight years the number rose, under the favourable in- fluence of an improved legal status, to 692. That is the number which came into existence in the eight years following the adoption of the new code of commerce was over three times as great as the number existing at the end of 1881 as the result of the efforts of nearly eighteen years preceding that date. And other illustrations might be cited to the same general effect. From this point of view the general subject of co- operative associations, and of the laws under which they have successfully operated, both at home and abroad, is worthy of the most careful study of our own state legis- lators, since it is in their province that the necessary legislation upon this subject ADDENDUM 157 APPENDIX No. 3 must chiefly fall. And here it may be worth while to call attention to the fact that the New York law on loan associations, which contains excellent features and has even been cited as a model, is vitiated by a provision giving one vote for each share of stock, and thus placing the associations on the joint-stock rather than co-operative basis. It is well enough to permit the share-vote system, where provided for in the constitu- tion of a society; but the system of one vote to each member should have the equal sanction of the law, and it is the one which should be adopted by every society that is to consist mainly of small shareholders.' (Page 113.) On the other hand, such a high authority as the Indian Committee states: ' The Companies Act, which is the only enactment in any way applicable to societies of this kind, is wholly unsuited to institutions with varying capital, apart from the expense of putting into operation the provisions of the Act. We, therefore, recommend that legislation should take the form of a special Act of a permissive character and following the general lines of the English Friendly Societies Act. 1 (Page 7.) The same situation prevails here and therefore the same remedy should be applied, by the passing of a ' special Act of a permissive character.' , }Ir. Nicholson has also closely examined the same question, as shown by the following quotations : 'But so soon as it was recognized that the societies, whether the popular banks of every class in continental Europe, the Building,- Friendly, or cooperative societies of England and America, and the savings banks of the whole western world, were factors of inestimable value in the social and economic problem, special laws were passed for the furtherance and good management of such societies, or special provision was made in the general commercial codes of those countries; it was at once recognized that without the assistance of the law, and without public recognition and support, the nascent organization might fail both of its true extension and of its full development; great ideas had been born, but the infant systems required support and sustenance/ (Page 14.) Again : ' It is absolutely necessary, if these societies are to become the sources of organ- ized general credit to the small folk in general, and to the agriculturists in particu- lar, tha't there should be a law dealing expressly with these and similar societies, and favouring their institution, management and development.' (Page 23.) On the Joint Stock Companies Act, he says : 1 The present company law is defective exactly because it is the law of commer- cial joint stock companies only ; it is adopted from the English company law alone, and takes no thought for the numerous other kinds of societies for which England and the rest of the world provide special laws with special privileges and conditions. One, and a very important ill result of this defective law, is the turning of society methods and ideas into a mere trading groove ; the ideas and management of the directors and shareholders are based upon pecuniary profit through dividends and honoraria, where- as that side of society administration should at least be equally presented which is based upon co-operative ideas and methods. In fact, if the lessons of the several studies presented in Appendix I. are correct, it is the co-operative classes of banks which, above all, are desirable for rural conditions, for it is they which teach pru- dence, thrift, temperance, the productive use of capital, unselfishness and mutual help, above all other forms of banking organization.' (Page 25.) After reviewing the principles involved, Mr. Nicholson very properly affirms that it is in the adoption ' of organized and popular thrift, and of popular distribution, that success lies ; these principles must take various shapes, as in the numerous insti- tutions of the West : it is in the general ramification of oragnized thrift and credit, especially in their co-operative forms, that success is to be sought.' (Page 31.) 158 INDUSTRIAL AND CO-OPERATIVE SOCIETIES ^ 7 EDWARD VII., A. 1907 And further on: ' All the successful systems have been the work of single philanthropic individu- als, who have conceived the ideas and have personally and patiently laboured it may be without success for even tens of years until their ideas have become established and successful facts: it is not the State, but the individual, who has originated and developed the ideas of thrift and popular credit in Europe. Nevertheless, had it been possible to foresee the methods and the difficulties of the several institutions, it would have been advisable to assist their development by favourable laws and otherwise, as has been done when their scope and limitations, their defects and their successes, became apparent.' (Page 31.) Now, what should be the character of such a law? The Indian Committee has expressed an opinion upon this point which can be adopted as a very safe guide in th matter, as it lays down a general principle that should govern everywhere, namely, the necessity of reckoning with the local conditions and circumstances of the various countries : ' We consider that hard and fast rules for the institution of co-operative credit societies throughout India cannot be laid down, since due regard must be paid to the local conditions and circumstances of the various provinces, which differ widely both among themselves and from the conditions which prevail in Europe. We have not, therefore, found it advisable to attempt 'to follow too closely the lines of any one of the various systems which have so successfully established themselves in Italy and Germany. Nevertheless, we hold that it is possible to indicate in a general manner certain principles which should govern the organization of all co-operative societies.' (Page 2.) ONE VOTE PRINCIPLE. What illustrates more than anything else the essential difference existing between a joint stock company and a co-operative association is the principle of one share- holder one vote. Unlike the society based on capital, whatever may be the number of shares one has, be it large or small, he has only one vote. This system is the direct outcome of the central idea that should always prevail in a co-operative association, that of an aggregation of individuals, not of dollars or capital. No one ought to have the privilege of enjoying a larger influence because he has put in more money than his neighbour. The voting power being the same for every member, no one can exer- cise an undue pressure on the management of the association, or vote himself into any office where he could control the affairs and manage them according to his own selfish interests. The danger of such societies falling into the hands of speculators is thereby out of questioon. The importance of this principle has been universally recognized. No co-opera- tive society is truly so, if this principle is not strictly acted upon. Mr. Nicholson very properly points out: 'Aggregation of members not of shares. The subsequent chapter is one of the most important, as it deals with * Popular Banks ' under 'their several systems. These are generally co-operative, that is, the whole of the bank operations are conducted by the members and for the members; the society does not consist of a fixed number of transferable shares which may be transferred to and held by any one soever, but of a congeries of onen all personally selected for admission to membership ; the holding of a share does not make a man a member as in a joint stock society, but membership gives a right to and requires the holding of a share ; the society is an aggregation of members not of shares. Moreover, the borrowers are the members and the members only; the interests of the bank are bound up with its members, that is with its bor- rowers, and the result is not merely safety to the borrower, but great facility and cheapness of loans since all profits return to members coupled with a very distinct moral influence by the society over its individual components. These societies are described in some detail as they provide credit even for the smallest folk, but usually ADDEyniM . 159 APPENDIX No. 3 upon what in banking is technically termed " character,' on security based upon the general status, position and character of a borrower and his sureties; mortgages are little used by these societies which are specially adapted for what is known generally as "agricultural credit," that is the loans for the current needs of the agriculturist and for his working; capital (Page 9). ' Mr. Peters examines also the same question: 'In these associations and this is a characteristic which they have in common with other co-operative associations the investor is usually secured against the fate which so commonly overtakes the smaller investor in joint stock companies, that of finding the concern so managed as to make his interest profitless to him until he is finally constrained to dispose of it to some larger shareholder for a fraction of what it cost him. The preponderance of power which enables a few large shareholders so to manage in joint stock corporations is prevented in the co-operative credit societies sometimes, as in the German institutions of this character, by forbidding any mem- ber to acquire more than one share, and in other cases by limiting each member to one vote whatever the number of his shares, while leaving the latter either without limi- tation or subject to a limitation more or less elastic. The limitation of each member to one vote is, of course, calculated to discourage any member from acquiring a much larger interest than his fellows in the capital stock, but it leaves him free to do so at his own risk, subject to the condition that he shall not thereby acquire any additional power over the affairs of the society. It thus leaves a greater latitude for subserving the convenience of the more thrifty members than exists where each member is re- stricted to one share, and at the same time makes it possible for the society to receive a considerable amount of capital which would be excluded by such a restriction. But, while more or less inequality in respect to the number of shares held may, perhaps, be advantageously allowed, and while it might even be safe to make no restriction what- ever upon this point, the maintaining of equality between the members in respect to voting power may fairly be regarded as a requirement essential to the security of the co-operative principle. It is true that there are societies known as " co-operative " which do not observe this requirement, some allowing a vote for every share, like an ordinary joint stock association, and others adopting some compromise between that and the true co-operative plan ; but the vital distinction between such societies and those which give one vote and no more to each member in good standing should never be overlooked by the small investor. The similarity in name arising from the use of the word " co-operative " by both should never be allowed to conceal this essential dif- ference in their character. Any objection to the principle of equal voting power on the ground of alleged unfairness falls before the consideration that co-operative socie- ties are primarily designed for people in poor or very moderate circumstances, and therefore, for people who in the main are in approximately equal conditions. If among such there are some who, by greater ability, industry, or self-denial than others, can save money more rapidly than they, these will the sooner advance beyond the stage for which the co-operative societies are more particularly designed and will readily find other channels for the investment of their 'accumulations ; and it is much better that they should do so than that societies should lose their adaptation to the wants of the average masses through an effort to adapt them to the convenience of exceptional individuals. There are instances in which the entire membership of a co-operative society consists of comparatively well-to-do persons, and there is nothing to prevent such persons from organizing on the co-operative plan with shares to suit the length of their own purse ; but if they prefer to have votes in proportion to the amounts they invest, there are always joint stock companies ready to admit them to member- ship. ' In addition to the three just mentioned, other points of adaptation to the wants and circumstances of the working classes will appear in the accounts of the several classes of societies given further on, including especially those conditions and methods of business which look to the security of the funds intrusted to the associations ; and 160 INDUSTRIAL AND CO-OPERATIVE SOCIETIES % 7 EDWARD VII., A. 1907 it will also appear that, while the largest class the German loan and credit unions of the Schulze-Delitzsch types were more particularly designed for the workingmen and small tradesmen of the towns and cities, these associations, with others modeled upon them, have in a large measure extended their utility to the smaller farmers and other rural inhabitants in the neighborhood of the places in which they are organized. And, in the case of the German loan fund unions of the Raiffeisen type, the wants of the rural districts have been the main object of consideration, particularly those of the small peasant proprietors and the small tradesmen of the villages.' (Page 11.) And further on he states that the most essential point is the * limitation to one vote; and that under these circumstances it would be impossible for the wealthy to gain control of a society in which the shares are placed low enough and made payable in small enough instalments to put them within the reach of the more numerous class for whose wants the credit unions are adapted. The adaptation of these institutions to the wants of the comparatively poor, coupled with (or rather including) the prin- ciple of one vote and no more to each member, sufficiently accounts for the fact that the German people's banks have not been captured by the rich.' (Page 26.) Elsewhere (page 88) Mr. Peters adds that in Italy ' there is the same legal restric- tion to one vote, which is really the essential thing,' and the Indian Committee strongly hold the same view as evidenced by the following paragraph of their report (Page 6) : ' We hold it to be absolutely necessary to preclude the possibility of such societies as might be founded falling under the control of speculators. We have, therefore, decided that the number of shares or votes held by any individual member must be strictly limited, and that stringent conditions must be imposed on the transfer of shares.' The Paris Congress of 1900 affirmed the same principle by passing a resolution in which the following lines are to be found: ' To consider the association as a society composed of persons rather than of capital interests, imparts, especially, a personal character to the shares and to . the conditions on which they are transmissible, the limitation of the share of each asso- ciate, the unification of the votes at the meetings ' The adoption of the one vote principle should remove all fears of speculators, the control being thereby kept forever in the hands of the interested parties, who would have always the power to protect themselves against any attempt of such a nature coming from whatever quarter it may. CAPITAL SHARES. The question of capital is one of very great importance, and anything connected with it must be carefully considered before a conclusion is reached. It involves four distinct main points, namely, (1) where is the capital to come from; (2) should there be shares and how shall they be paid in; (3) shall they be withdrawable or not, hnd lastly, (4) should a maximum amount be fixed by law for an individual member. As to the first point, it should be clearly stated that the capital is to come from the members only. That is the view of the Indian Committee as shown by the fol lowing extract from their report: ' As regards the source from which the working capital is to be obtained, the ideal system would be an association, the members of which would first accumulate capital by saving and then lend among the members the money so accumulated. The fact of being a shareholder gives a member an interest in the working of the association, and is educative in its encouragement of thrift,' (Page 2.) The Committee calls it an ' ideal system,' and I believe that in Canada the cir- cumstances are such as to justify parliament in adopting at once that ' ideal system ' as a basis, for the very good reasons mentioned in the concluding part of this paragraph. Thrift is one of the two main objects of such assocations, and anything that could tend to encourage it should be adopted. So, too, everything which can create an interest in the working of the association should be taken advantage of. ADDENDUM 161 APPENDIX No. 3 < SHARES. The second point is whether or not there should be shares, and if there should be shares, then what should be the amount of each share, and how payable. The capital should be variable and divided into an unlimited number of shares. That is the system universally adopted, because it is the only one that can be suitable to the classes likely to avail themselves of that form of association. On this subject of shares, the report of the Indian Committee states : 1 We consider it desirable that, where the state of the country is sufficiently advanced and where circumstances permit, co-operative credit associations should be founded on a share basis ' And later on: .... The various means by which working capital can be obtained may then be described as subscription for shares, deposits of members of the association. . . &c. INSTALMENT SHARES. Then, how are those shares to be paid in. It is most important that the payment thereof should be made as easy as possible, and on this, Mr. Wolff says : ' However, we have still our " small capital " to provide. There is only one way in which it may be provided consistently with" self-help. The members themselves must put their shoulders to the wheel, they must contribute their savings, it may be by six-penny or threepenny instalments, so as to create a fund which will at the same time benefit each individually and the whole number collectively, assuring* to each a growing equivalent to a savings bank deposit, entirely his own, but so employed, by being invested in bank shares, as to enable the association to lay out the money fruc- tifyingly in loans promising to benefit the borrower and yielding a small profit to it- self. ' (Co-operative Credit Bank( page 15.) And Mr. Peters states: ' The shares of stock in the co-operative credit associations can be purchased gradually by weekly or monthly payments. These may be fixed at an amount to suit the circumstances of the majority of the class in which the membership is to be mainly recruited, so that each member may be enabled to begin the process of accumulation by investing such sums as he is able to save, be these ever so small. Moreover, the small savings thus invested, when united with those of the other members, form a sum which can promptly be loaned to some member having a profitable use for the capital which they form, and are thus increased by the income which they earn instead of remaining idle in the owner's hands and subject, in many cases, to dissipation in needless or hurtful expenditure.' (Page 11.) With regard to the amount of each share, Mr. Wolff says : ' A bank may be as useful and as truly co-operative with small shares as with large. In Italy and France the shares issued are generally small, ordinarily of 1 or 2, but ranging from 4 down to 4s., according to the varying circumstances and require- ments of the persons for whose benefit they are intended. Such shares have, as a rule, to be paid up in ten months, by equal instalments. But, this, though a good maxim, involves no question of principle, and the period may without detriment be extended, as indeed it often is. The people disposed to continue saving may in such cases satisfy their love of thrift by acquiring new shares after the first have been paid up.' (Idem page 16.) It is to be noted that the English law do not mention any amount for each share, this being wisely left to the discretion of the society, and should be fixed by the rules. The amount of each share and of each instalment is a matter, therefore, to be fixed by the by-laws according to the circumstances of the various associations. 162 INDUSTRIAL AND CO-OPERATIVE SOCIETIES % 7 EDWARD VII., A. 1907 WITHDRAWABLE SHARES. The third point is: Shall the shares be withdrawable or not? The English Act makes a distinction between societies doing what is called banking and those having another object. The former cannot have withdrawable shares, while the latter can. As a matter of principle it is difficult to understand why the distinction is made, for both receive loans or deposits from outsiders. If in societies doing banking the shares are made non-withdrawable for the benefit of depositors among whom there may be out- siders as well as members, the necessity for a similar safeguard exists in the one case as in the other. The fact that in the case of the banking societies the amount of the deposit is not limited, while it is to 20 in the other, does not matter. RESERVE FUND. Be as it may, however, the main argument that can be invoked in favour of non- withdrawable shares is to be found in the fact that the English Act does not provide for a reserve fund to be accumulated out of the yearly profits by a percentage being put aside for that purpose. Such a reserve fund being made the exclusive property of the association as a whole, the individual members having on withdrawing, no right to a proportion of the saine apart from their paid-up shares, would be the permanent capital of the society, and with its yearly increase will grow the safeguard offered by the association. The law should fix a minimum amount for that reserve fund, and until that minimum is reached the specified yearly percentage of the net profits should be set aside for that object. In case this fund is impaired by losses or otherwise, then the same yearly percentage should be taken from the net profits until it has reached again the minimum provided for. This minimum could be based on a reasonable pro- portion of the amount paid in on account of the shares subscribed. This guaranty fund serving as a permanent capital would safely permit the withdrawal of shares. This safeguard is not provided for by the English Act, and that can explain why the shares are not uniformly made withdrawable. But apart altogether from the above consideration, as a question of general safety and wise management, it is most important to provide for the formation for such a reserve fund. Mr. Nicholson is very positive upon this point. He says : e A reserve should be compulsory, and formed from the beginning by a percentage, say 10 or 20 per cent, taken from the profits before any dividend is announced; in the case of co-operative banks, allowing only fixed interest on the shares, a further allotment should be made to the reserve, to which also should be paid all entrance fees, and any commission specially intended for the reserve. There might be special reserves, especially for the insurance of borrowers against failures of their improve- ments; these would be filled by special contributions or by the allocation of surplus profits.' (Page 382.) Mr. Wolff is of the same opinion, and quotes approvingly the wise measure taken on this line. On page 229 of his ( People's Banks' he -states : 'I have incidentally spoken of the reserve fund, which, of course, these banks accumulate out of profit, allotting annually from 15 to 25 per cent to- its formation.' ' The weaker banks are in capital, the more importance, as a matter of course, do they attach to a reserve fund; and thus we see every good bank in Italy building up as strong a reserve as it can so strong that, in the case of the Banca Populare of Bologna, it actually exceeds the paid-up share capital, standing at 1,292,077 lires, as against 1,260,540 lires.' RESERVE FUND MINIMUM AND YEARLY CONTRIBUTION. I would humbly suggest that the minimum amount of the reserve fund, when completed, be equal to the maximum amount paid in at any time on the subscribed shares, that the percentage to be taken out of the net profits be at least 20 per cent cent per annum. ADDENDUM 16 APPENDIX No. 3 In order to appreciate more fully how large and reassuring are the proportions suggested, I may be permitted to draw attention to the fact that the law of the state of Maine relating to savings banks, banks that have not a dollar of subscribed capital to protect the savings therein deposited by the public, states in section 106: ' The reserve fund shall be kept constantly on hand, to secure against losses and contingencies, until it amounts to 5 per cent of the deposits/ Later on, the percentage was increased to 10 per cent. The amount held in 1906 as deposits by the Maine savings banks, 51 in all, was $82,677,981.25, and the reserve fund for the same year was only $4,695,873.74, or a little over five and a half per cent of the total deposits. In Massachusetts ' the laws,' said the Chairman of the Board- of Commissioners of Savings Banks at the Convention of Supervisors of State Banks in 1905, t requires that at the time of making each semi-annual dividend not less than one-eighth of one per cent, not more than one-fourth of one per cent shall be set aside from the net profits which have accumulated during the six months last pre- ceding as a guaranty fund, and that fund cannot be used for any purpose until it reaches five per cent of the deposits/ In 1904 this guaranty fund was equal to 4:54 per cent of the amount of the deposits, which aggregated to $674,000,000. The law of the state of New York do not requires the trustees of the savings banks to accumulate a reserve fund. They may do so or not; it is entirely left to their discretion. The law says section 123 ' after deducting necessary expenses -and reserving such amounts as the trustees may deem expedient as a surplus fund for the security of the depositors, which to the amount of 15 per cent of its deposits, the trustees of any such corporation may gradually accumulate and hold, to meet any contingency or loss on its business from the depreciation of its securities or otherwise.' And these savings banks with no guaranty fund required by law, and like those of Maine with no capital, were in 1904 holding about twelve hundred million of dollars of deposits. These banks are commonly called in the United States uncapitalized savings banks, because there are a few others who have a capital for the protection of the depositors. The amount held by these uncapitalized savings banks aggregate now at least three thousand millions of dollars of deposits, with the only security of the five, ten or fifteen per cent, according to the law in the various states, of the average deposits as a reserve fund. Still the confidence of the public is made very apparent by this vast amount of deposits entrusted to these institutions, administered by self- chosen gentlemen acting as philanthropists, and not directly answerable to, nor selected in any way by the depositors themselves who provide those funds. The above reference to the United States savings banks, considered as very safe, if one can judge by their success, shows that the suggestion I have the honour to offer is very liberal indeed and evince a desire to create a reliable basis of operations for the future co-operative credit associations to be organized under the Bill. On this point, Mr. Peters states that the German law provides as follows : ' In the form of constitution framed as a model for credit unions registered under the new law, it is provided that until this fund amounts to 15 per cent of the total paid-in capital of the society it shall be reinforced each year by adding to it 15 per cent of the net profits ; and if, through the use of a part of it to cover losses it is reduced below the standard just indicated, it must be brought back to that level by the same yearly addition from the profits as before. This fund remains the property of the society until its dissolution, and no member retiring before that time can claim any share of it as a part of the amount due hiin ; but all members benefit by it so long as they remain in the society since the income it earns is one of the sources of the profits which form the dividends.' (Page 28.) These quotations show that the quantum suggested is comparatively very high and affords ample guarantee. 164 INDUSTRIAL AND CO-OPERATIVE SOCIETIES % 7 EDWARD VII., A. 1907 DEPOSITORS NON-MEMBERS EXCLUDED. Another reason why the shares of co-operative societies doing banking under the English law cannot be withdrawn, can be found in the fact that the Act permits these societies to receive deposits from non-members. As those depositors have no right to be heard in the management of the affairs, it is but fair that they should be protected in another way, hence that proviso. But as I am of opinion that, upon a question of principle, deposits should be received only from members, in order that co-operation should be complete everywhere, I would prefer to see the right to receive deposits from outsiders denied under the Bill before the committee, and in its stead to put in a pro- viso making all shares withdrawable, while a part only is so under the English Act. Having no deposits from outsiders, nobody could complain. The depositors being all Unembers, could protect themselves by the exercise of their right to control the manage- ment and inform themselves thoroughly as to the real situation of the affairs of the society in which they are shareholders as well as depositors. To sum up the above in a few words, I would say that in the credit societies, organized under this Bill, the shares should be withdrawable, because, (1) of the for- mation of a guaranty fund in the shape of a strong reserve; and, (2) of the exclusion of non-members as depositors. In the following extract, Mr. Wolff goes much further than I do and advocates withdrawable shares combined with the right to receive deposits from non-members. He says : H 'It allows us to do actually anything that we are at all likely to desire to do- bank, discount, take deposits from any one ; only we must not issue withdrawable shares. That restriction certainly appears to me a matter for regret. For, from a co- operative point of view, withdrawable shares are decidedly preferable to non-withdraw- able, and they would go some way towards warding off the " unco-operative " practice, always apt to creep in, of levying toll upon incoming; members at a progressive ratio, in the shape of a premium upon shares. The beau-ideal of shares in a co-operative concern is what the French call parts sociales fixed contributions, which do not vary in issue value/ (People's Banks, page 375.) Speaking of the Switzerland people's banks, he states that retirement is made easy, members being even in several cases ' allowed to retire at any time without notice.' The shares being after all under this system mere savings deposits, with, it is true, a certain character of permanency derived from the fact that they are supposed to be at the disposal of the society for a much longer time than ordinary petty savings put aside for daily wants, and as such having the right to a higher remuneration out of the yearly profits, the following quotation of Herr Schenck, a very high German authority on the matter, and approvingly given by Mr. Peters, applies fully to the present case : ' But the question presents itself in quite a different aspect if we consider small deposits, the modest sinus saved by the artisan, the labourer, or the peasant, sums which, if they remain in the hands of the owner, disappear or are wasted in useless or perhaps hurtful expenditure. Such sums are savings bank deposits properly so- called. These, within the proper sphere of their operations, the associations should invite, should employ them usefully within the same sphere, and make them directly or indirectly serviceable to those who have accumulated them by their labour and self- denial. This is a duty to which the associations are called by their nature, their object and their own interests, and one whose performance assures thean a regular and constant supply of money, deposits and withdrawals balancing each other. Exper- ience has shown that in times of crisis it is not the savings bank deposits which are first withdrawn.' (Page 30.) My own experience extending over six years in a similar society confirms abso- ADDENDUM 165 APPENDIX No. 3 lately this view, the shares becoming steadier, realizing thereby the prevision upon which they were instituted. A WITHDRAWABLE SHARE CAPITAL NOT AN OBSTACLE TO PROFITABLE LOAN. Can it be seriously argued that withdrawal shares would prove an obstacle of a nature that either credit could not be granted through loans to members or that the association would soon find itself plunged into very grave embarrassment, if not in- solvency, by being unable to realize its assets. A daily experience extending over half a century has demonstrated in the most conclusive manner that such apprehensions have no foundation whatever. In Europe, more particularly in Germany and Austria as well as Italy, loans are currently made for five, ten and even twenty years, out of funds so withdrawable at any time or upon short notice, without -any trouble having ever arisen. The vacuum created by withdrawals is invariably filled up by fresh funds coming in, and even the total amount available goes on increasing instead of diminishing. In a recent lecture delivered before the annual meeting of the Agricultural Organization Society, held in England on December 11, 1906, Mr. Henry W. Wolff could truly state that savings collected by the German people's banks amounted yearly to ' five millions pounds sterling in excess of withdrawals/ and that for 1905, the last full year reported upon, ' 921 such banks among them lent out 150 millions pounds sterling/ And he added that ' at least one-fourth of that goes to agriculture. ' And why such results are they possible? ' Simply because/ says Mr. Wolff, using his own words: /You do not seem to have any idea what a marvellous gift co-operative banks have of ingratiat- ing themselves with local people as savings banks. But that is what forcibly strikes every one who visits them abroad. Therefore, Lord Avebury was quite right when, in 1837, he recommended them to the House of Commons as model receptacles for sav- ings. You may observe it at their very first start, in their most feeble infancy.' Here Mr. Wolff, who very closely follows up the movement of expansion of these banks all over the world, gives a very telling instance of the productivity of these associations as saving receptacles. He states: ' In Cypress a friend of mine has started fourteen village banks, as nearly Raif- feisen as he could make them under adverse circumstances, in as many wretchedly poor villages. Within one year their savings deposits averaged 200 per bank. The collective amount represented more depositors and totalled up to a higher figure than all that the far more pretentious government savings banks, working over the whole island, could boast of after five or six years of its existence.' But what has just happened in India is still a far more striking example to the same effect. 4 In India/ says Mr. Wolff, ' the same registrar, under the Act of 1904, who about a year ago advised me that among the wretchedly poor rayats of his presidency sav- ings deposits were absolutely out of the question, now states in his last annual report that savings deposits are coming in nicely, that the members of his banks have bound themselves by rule to deposit each year so much for every rupee rent paid, or for every plough employed. l If this continues/ so he adds, ' and there is every prospect that it will, the problem of financing these banks will settle itself.' Why should we not expect the same results here?. If, therefore, funds are so easily coming in and in such increasing ratio every year, there cannot be any trouble to apprehend in loaning them, even if a fair proportion should be utilized in pretty long-term investments. Of course experience will show how far prudence will allow to go, but in point of fact the question in itself need not disturb the mind, for a reliable basis will be found as time goes on. On the other hand, we have not the bank deposits withdrawable by checks, that are -daily loaned out with apparently the greatest safety to all parties concerned ? Of course call-loans go in for a proportion, 158412 166 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A, 1907 but after all it is a matter of mere good common sense and prudence. If bankers were told that they cannot utilize at all those funds because they are liable to be withdrawn at any^ moment, they would not pay interest on such idle funds, not being able to afford it without the profits derived from the loaning of them. Moreover, the bank deposits must be considered, coming as they do from the general public, not particu- larly interested in the fate of the banks, or concerned with the possible outcome of prompt withdrawals, as of a more risky character from this point of view than would be those that would be attracted by the co-operative credit association, as they inevit- ably will be, as shown by the experience of Cypress and India. The depositors in these latter being the very interested parties, it is not likely that they would act rashly or with the same stiffness as a bank depositor is liable to do because he does not care whether the bank be embarrassed or not. Again, working in a small area among people knowing each other there cannot be any movement susceptible of producing large withdrawals without it being dis- covered long before the consequences are seriously felt, so that ordinary precautions could be taken to meet any such emergency, although such is very unlikely to happen. LIMITATION OF THE MAXIMUM OP SHARE CAPITAL A MEMBER MAY HOLD. In connection with the question of capital there arises another one of a very con- siderable importance, that of the limitation of the maximum amount that a metmber may hold in shares. The English Act states that this amount cannot be higher than 200. To under- stand the meaning of this strange restriction, it is necessary to know why it was put in the law. Obviously the object was to prevent speculators from having the control of the society and managing it, not as a co-operative association, but as a mere joint stock company, trying to g;e^ from it as much profit as they possibly could at the ex- pense of the general public and perhaps of the rest of the members who happened not to nave deserted the society. That such object is a laudable one none can deny. But is that the only way whereby that object can be attained? Most assuredly not. A more commendable mode would be to restrict the right of voting to one vote only. And this the English law does not. It would insure the object in view in a better way without the injury of curtailing the right of the members to continue to invest their savings as they choose ,and of depriving the associations of a larger flow of funds with which they would work to better advantage and so make the shares more profit- able. This restriction should not exist, above all, in a co-operative credit association. In fact, why not give the widest possible scope to thrift, one of the two main objects of such a society being precisely the encouragement of thrift. Between the two modes of preventing speculators taking control of a cooperative credit association, the one by limiting the amount of shares capital allowed to a member and the one vote system I humbly suggest the latter as affording a surer guarantee than the former. In a small society a few wealthy members may have the maximum amount determined while most of the other members may possess only one or two shares each, and with the sys- tem of voting based on the number of shares, those wealthy members, if they are speculators, could control the society. VOTE BY PROXY PROHIBITED. This danger is still more apparent if one considers that the English law does not prohibit the use of proxies. With the right of voting by proxy, speculators could easily gain the control if they wanted to. If I am permitted, I will suggest, as an additional guarantee against any possible attempt of that kind, to prohibit voting by proxy, except with regard to corporations. The well known evils of the proxy voting system have not and cannot possibly have, in connection with these associations, having a very limited territorial field of operation, any appreciable redeeming fea- tures. In England these co-operative societies doing banking have by law the right to sell shares and accept deposits all over the .country; the proxy voting may there- ADDENDUM 167 APPENDIX No. 3 fore be a necessity, but when their field is limited to a very small area, as it is in the present case, the same necessity cannot have force enough to justify in runnii g the risks of the numerous abuses that can and do very often arise with proxies. CREDIT CONFINED TO MEMBERS. But apart from the highly effective safeguards already enumerated, there are many others of a very important character which deserve to be pointed out in order to give a correct conception of the system advocated for the good of our working cJ asses. In the first place, members only are to enjoy the right to borrow from the association, and members are chosen by the board representing the society. Mr. Wolff rightly insists, with great force, upon this point: ' The first safeguard relied upon is the election of the person to whom the loan is made, as a trustworthy, respectable, presumably honest and honourable person. Lending to non-members would be altogether contrary to the principle of the bank.' Mr. Wolff here adds that this ' favourable judgment passed upon the incoming member by his neighbours, already in the bank, consequently interested in its welfare and success, forms the first wall of security for the society. The man has been judged eligible; therefore presumably, up to a certain point, he is to be trusted/ (Co-opera- tive Credit Banks, page 28.) Then, the credit that can be granted to members is assessed by a commission specially appointed for the purpose and perfectly independent in their dealings, and they have no remuneration for their services, having therefore no fear to lose anything by discontentment on the part of members having been refused loans. Upon this point again, Mr. Wolff is very positive: 1 Co-operative banks, therefore, are in a peculiarly strong position to deal with their members. If they do not in all cases insist upon knowing all about every loan some people's banks do they are aware that they possess substitutes for such knowl- edge. In addition to 'profiting by the touch or the means of information at their command, which have been already explained, they may appoint special ' discount committees/ sometimes with a ' risks committee ' tacked on as a supplementary in- stitution. The business of the ' discount committee ' is, so to speak, to ' assess ' every member in respect of credit, to mark against his name, on a register kept strictly private, known as the ' castelletto/ a figure representing the credit which the manager will be authorized to give without further inquiry, always assuming the member'3 credit not to be already otherwise pledged. Two or three members, combining for the purpose, may assign their joint credit to one of their number. Should a larger credit be asked for, the manager will have to refer the matter to the committee, which may or may not decide to grant it, securing itself as it thinks proper. The 'risks committee ' keeps full records of all the transactions engaged in, both with members and their sureties (who are often outsiders), as to amount, promptness of repayment, any trouble given, &c. The registers, carefully kept and admirably indexed, servo as a most valuable guide for further transactions. By means such as those indicated, the interests of the bank may be pretty effectively safeguarded, subject to further securities such as every loan transaction presupposes/ (Co-operative Credit Banks, page 32.) SUPREME AUTHORITY VESTED IN THE GENERAL ASSEMBLY. Moreover, the members are not like ordinary shareholders in joint stock com- panies who, most of the time, are made cognizant of the wrong when the wrong can no longer be effectively remedied, being governed by an almost autocratic board of directors who for twelve months can, to a very large extent indeed, do as they please. In a co-operative society the members delegate only such powers as are absolutely necessary to the proper working of the routine business, and keep to themselves the 1584191 168 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 right to decide previously any case -having an important bearing upon the well-being of the association. Mr. Wolff says : ' Co-operative banks being, as has been explained, specifically " customers," not " proprietors," banks, the first point to be kept in view in devising an organization for them will, as a matter of course, have to be, to make sure that the customers' interest are adequately protected and really made paramount. There can be no " board of directors," holding the helm, more or less in independence of the members and restrained by merely a doubtful responsibility. The supreme power as regards the government of the bank and jurisdiction 011 all issues which may arise must be n'k'solutely vested in the general body of members, which must be in a position to hold its officers fully responsible and to re-hear cases decided by them. The more this democratic principle is actually brought out in pctice, the more the fact is empha- sized that the bank is the bank of the members, to be administered for the members, and virtually by the members, the better is the bank sure to thrive. There cannot possibly be any better protection to the bank for the security of the values which it administers than a keenly awakened interest and sense of responsibility and solidarity existing among the members, every one of whom should, if possible, become to some extent vigilant watchmen over its interests. Nothing is calculated to awaken more vividly what is known as the " co-operative spirit," nothing is more certain to ensure the realization of the ulterior object of the bank, that is, the suggestion to members of co-operation for other purposes, the mutual support of one another with such power as each may stand possessed of, in all affairs of life to which combination is applicable and qualified to lend additional force.' (Co-operative Credit Banks, page 38.) This constant and possible interference of the general assembly is made practi- cable by the small territorial area assigned to the association, a meeting being thereby always a very easy matter to arrange whenever such meeting is deemed necessary or advisable. It is apparent that the officers are to carry out but the instructions given to them by the general body of members, as it is also part of their duty to submit for the approval of the general assembly whatever measure they think should be taken in the best interests of the association. BOARD OF CREDIT-MEMBERS NOT ALLOWED TO BORROW. In order to better safeguard the association against any possible abuse, it should be positively stated in the by-laws, if not in the law itself, that those who are called upon to decide who shall have loans and who shall not, should not have the right to borrow. It is undoubtedly a very delicate and dangerous right to exercise, above all when one has to pronounce upon his own credit, and in spite of the inconveniences that would arise in some cases, it would be a great mistake not to deny that right to those who are to fill those grave functions in a co-operative society. Too many evils of a contrary practice have resulted elsewhere not to take a wholesome lesson from these evils and prevent them by all possible means. The members of the Indian Commitee have been struck with the force of this safeguard, for they said in their report : ' In urban associations the president should not be allowed to take loans during his term of office, and in both village and urban associations no member of the com- mittee should be allowed to adjudicate upon his own application for a loan. ' (Page 6.) Thus it would be seen that the committee did not think necessary to go as far as as I am suggesting by inserting a complete prohibition against the officers minister- ing the loans to be made; however, I am so convinced of the necessity of such a pro- hibition that T would consider it a fatal mistake if it was not enacted in a clear way. COMMITTEE OF SUPERVISION. It has already been stated that in these co-operative associations the supreme authority is exercised by the members themselves in general meetings, and the powers ADDENDUM 16ft APPENDIX No. 3 delegated to the officers are restricted in their nature and only of a purely executive character. These well-defined powers are limited to the requirements of operations of a very simple and local business. But even these precautions have not been considered sufficient, and as there were to be inconveniences to members to call them often in general meetings to examine the management of the Boards of Administration and Credit, another board was created called Committee of Supervision. This last board have very wide powers of a controlling character, but have no right to decide import- ant questions arising in the discharge of their duties. All that they can do is to appeal to the general meeting, which holds the supreme power to pronounce upon those matters. These supervisors correspond to the auditors in companies, but their powers as qualified above are far more extensive. They are selected yearly by the general meeting from amongst the shareholders. Their number may vary, but three is con- sidered enough. They are re-eligible. They watch over all the operations of the association; frequently check the cash, the investments and securities ; see to the carrying out of the by-laws, regulations and decisions of the committee of credit and direction especially as regards loans and renewals: they must ascertain frequently the exact value of the securities in hand and, in a word, take cognizance of all the documents they deem useful for the per- formance of their duties. The committee of supervision has the right to examine and audit all the books of the association. They are bound to call an emergent gen- eral meeting of the shareholders if they find anything serious in connection with the management of the association's affairs or any violation of the statutory prescriptions relating to the administration of the moneys paid into the funds or of the securities exacted for the repayment of loans. They may, in the event of emergency or of ex- traordinary cases, suspend the salaried officials and members of the committee of credit, but shall at once report their reasons to a general meeting of the shareholders who shall decide on the same. They shall, when the case is not of sufficient importance to necessitate the calling of a general meeting of the shareholders, report their observations in writing to the council of administration. The latter shall be bound to act accordingly and, if ne- cessary, to remedy the state of affairs pointed out so as to remove all subjects of complaint. Should the council of administration not act, refuse to take up the matter, or neglect to take the proper steps to remedy the state of affairs pointed out, whereof the committee of supervision are constituted judges, they may bring the matter before the next ordinary or special general meeting that may be held, by entering the same on the orders of the day. They shall, generally, take the most suitable steps for ascertaining, the progress of the association's affairs which are entrusted to the various persons whose services are either gratuitous or remunerated and take every means to see, as far as possible, that the by-laws and regulations are faithfully observed. The members of the committee of supervision are chosen from amongst the shareholders who do not belong to the council of administration, the committee of credit or any other temporary or standing committee and who hold no office, whether salaried or not. The members of the com- mittee of supervision are not allowed to borrow from the association. In this respect their position is similar to that of the members of the committee of credit and manage- ment in order to ensure their perfect independence and impartiality. They must sub- mit a written report to every annual general meeting of their doings. I would humbly submit that the provision in the bill relating to the auditors should be drawn so as to convey the general idea set out in the foregoing definition of the duties and powers of these officers, and that their name be, if possible, changed so as to give a more exact conception of their functions, as the word auditor, as generally understood, carries a much more restricted meaning than the one indicated here as appertaining to these supervisors. As it will be readily seen, this committee represents the general meeting sitting in permanence alongside the officers and boards entrusted with the management of the 170 INDUSTRIAL AND CO-OPERATIVE SOCIETIES * 7 EDWARD VII., A. 1907 affairs of the association and watching their acts. This supervising body is another safeguard that cannot be but highly appreciated. OFFICERS WORK GRATUITOUSLY. Mention has already been made incidentally of the fact that the officers are to work gratuitously. Mr. Wolff is very clear upon this point, and I cannot do better than quoting such an authority to strengthen my own view: 1 Beyond this/ says Mr. Wolff, ' officers are expected to work altogether for nothing not only in order that only the most trusted and the most willing may be selected, but also in order that they may be fully independent, free to refuse favours to im- proper applicants, who might threaten in revenge to turn them out of their " office of profit " become covetable under the circumstances, by the hostile use of their vote. There is only one officer who is allowed to draw a moderate salary, and that is the secretary or treasurer, or clerk call him what you like who is entrusted with the purely mechanical work of carrying; out the committee's directions, and has no voice whatever allowed him in the responsible management of the bank, the election of members, or the granting of loans. In such manner everything is kept "clean" and straight. Such abuses as we see in some co-operative societies at home and abroad, in which the salaried staff of the society invests itself, in virtue of the votes which it possesses, with the power of a Praetorian guard, more or less arbitrarily nominating committee-men, not according to their fitness and conscientiousness in the discharge of their duties, but as they make themselves agreeable to the staff by indulgence, are altogether impossible in banks so organized. ' (C-operative Credit Banks, page 38.) GENERAL PRINCIPLES THAT SHOULD PREVAIL IN CO-OPERATIVE CREDIT ASSOCIATIONS. In discussing the long debated question of ' agricultural and industrial credit/ Mr. Wolff outlines incidentally some general principles that should guide the manage- ment of co-operative credit associations. The following lines are worth remembering in order that they be applied faithfully : ' Your man must be absolutely trustworthy ; your transactions are likely to be comparatively few. Loans will be demanded for long terms, the turnover will be slight. The margin between incomings and outgoings will be small. You will have to cut down expenses to the utmost and make gratuitous services the rule, which you can the better do since the call made upon your officers is not likely to be very exact- ing. You cannot adopt commercial methods, which your clients will not understand and which would bo out of place. But you have all your members well under your e.ve. You can control every one of them, and make them control one another. You ojiii interest the mass of your members even in the petty affairs of the bank, and so muke your machinery more effective by arming it, to repeat my earlier simile, with wjitching eyes and checking hands at every point. You can effectively check your clients' employment of their loans. You can bring class feeling and local feeling, and moral nnd social influences to bear. Therefore, if you have to be very careful in the "ction of your members, you may also stoop very much lower in the social scale, d nit even very poor persons, so long as you can make tolerably sure that they honest. Business with outsiders becomes an impossibility. Finally, resting your ii mainly on liability, you must apply yourself to strengthening your available a refull aisi g up a reserve fund, which you can scarcely make too -op] s . s/ p-'p,e 39). 1 - 1 th ' c.-'s " n v v^ar to nv, nt any rate fully to explain themselves, 'VTP scorns no room for even theoretical antagonism between them. The two !eh directly supplements the other; and, indeed, each seems Vote without tho other to supplement it. It is satisfactory to think that after nnd ' ootless hostility between the advocates of the two, the view to ADDENDUM 171 APPENDIX No. 3 which I am giving expression is coming to be more and more accepted, and on this score peace between traditional rivals seems at length in prospect.' (People's Banks, page 39).' LOANS THE SMALLEST PREFERRED. A co-operative credit society being designed to help the poorer classes, it should therefore look first to the wants of these classes. The best way to reach that object is to make it a strict rule to give a preference to the small loans which are likely to come in much larger proportion from the poors than from the well-to-do individuals. This will seem rather out of place in a period where everything seems to be done for one purpose only, that of making money by all means and before anything else, these loans being those that are the less profitable if made at a reasonable rate of interest, as it is always the case in such societies, because no other rate can possibly prevail. But it should be remembered again that in such an association the make-money-quick doctrine has no foothold. Its very existence is due to quite another object, and un- like, to quote Mr. Wolff (Co-operative Credit Banks, page 11), the 'capitalist or joint- stock banking exists for the avowed purpose of earning out of its business a maximum profit for a restricted number of traders; the few avowedly live upon the many, the traders upon the customers. A co-operative society is a customer's society, created, not to earn a profit a profit which, coming from the same purse into which it is ultimately to go, would be an illusion but to supply a service, in the interest of all.' And Mr. Peters writes upon the subject as follows: ' It is, in fact, one of their principal aims to let the members share as widely as possible in the advantages they have to offer, one of the rules laid down for their observance being that, other things being equal, the preference is to be given to appli- cations for small loans, so that the number of members accommodated may be as large as possible. As a matter of fact the small transactions greatly preponderate. It is said that loans as small as one lira are not unknown, and that those of less than twenty lire ($3.86) form a majority of the whole number, while the largest number of deposits are less than fifty lire ($9.65) in amount. 7 (Page 88.) Further on, he adds these most significant words: 1 While this shows that the growth in the business of the co-operative banks is far from being as rapid as the growth in their number, it is an indication of an in- creasing breadth of distribution for the supply of local needs, and seems 'to imply that the function for which such institutions were designed that of catering to the wants of the poorer classes is being increasingly well performed. ' (Pag;e 91.) This preference granted to small loans has another great advantage, that of been much safer, for it is very seldom that, say a hundred dollars divided up in ten or fifteen small loans is not more punctually repaid by honest borrowers as are those of a co-operative society, than by one individual who would have borrowed the same amount in a lump sum. This is the teaching of a daily experience in such matters. OBJECT OF LOANS AND CONTROL OVER THEIR EMPLOYMENT. But what is of paramount importance both to the borrower and to the society, and is a serious element of surety for the punctual repayment of the loan, as evidenced by an experience extending in Europe over half a century with uniform good results, is the obligation on the part of the borrowing member to state clearly the purpose for which he asks for a loan. The by-law requires that he shall do so, and if he does not comply with this rule the loan is invariably refused, however good may be the surety offered. This is a valuable safeguard for the association, because its object is not to make a profit ou't of a loan, but to help its members by a wise use of credit' for production or obtain a saving on an expense that would be higher if money could not be had at the proper time. As already quoted from Mr. Nicholson, it is not mere 172 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 credit for the sake of the benefit to be derived by the lender 'that is granted, as banks do, for instance, provided the security is good, but it is one of a particular kind, the really productive credit that is looked for and satisfied. No other loan should ever be allowed on any pretext by the members of the credit board. I remember one striking case in which, acting as president and manager of the association I have founded at Levis, I deemed it my duty to enforce that rule of our by-laws. A member came to me and asked for a $15 loan. I put to him the usual question : What is it for you wan't those $15? And as he hesitated to answer, I insisted by reminding him that if he did not loyally tell me why he was borrowing I could not even, submit his request to the board, he informed me that his object w-as to visit some distant relatives on a pleasure trip. I 'told him that I need not ask the credit board to lend him one cent for such an object, because they could not do it without violating the rule laid down in the by-laws, which rule was binding on everybody. Still, I must say that his credit was splendid, and 'that I had not the least doubt about his ability and willingness to pay at maturity. Why such a prompt and strict refusal ? Because the object was not of a productive character, and to grant i't would have been an encouragement to useless expenditure, whatever good sentiment may inspire the demand. This rule is enforced by no less a punishment than explusion if a member suc- ceeds in deceiving the representatives of the society and obtains such a loan in stating what is not true, or utilize the loan for another object of an unproductive nature. Now, the advantages to be derived from such a rule are obvious, and need not be referred to here in detail, but the f llowing quotation from Mr. Wolff is worth reading in this connection, as it gives a fair idea of these advantages as a whole: 'But that only means breaking the first ground. The member is presumably honest. But does his intended outlay promise a return will it repay itself? And is it legitimate in his particular case ? These questions are very searchingly considered and according to the judgment passed in committee, under a sense of re- sponsibility kept carefully alive, is the answer given. The committee are in respect of this matter strictly bound, not only by rules, and, by their liability engaged, but, in addition to this, by the acknowledge that all that they do will be from time to time inquired into very carefully by an independent controlling body above them, which, in the interest of the bank, will not allow them to ' stretch a point. ' There is no dif- ficulty made, if the case should be thought to warrant it, on the score of amount or of time. A loan, to be a real help, must be adequate to its purpose. And it must also be granted for a sufficient length of time to make it practicable for it to repay itself out of its own production or else the borrower will find himself hampered rather than helped, driven to taxing other sources of income in order to repay. But the object must be sound, and it must be legitimate. It may be to enable the borrower to pro- cure for himself materials for his trade. It may be to enable him to tide over a slack time or avoid a loss by selling commodities below their proper value. It may be Co assist him in doing more ample justice to his opportunities, in trade, on his farm or in his domestic economy. He may want to drain a field, to sink a well, to buy a cow or a pig, to build a shed or a house, or to make a road. It may be to enable him to purchase for cash at a considerable economy goods which he wants and for which otherwise he would be made to pay ' through the nose. ' It may be to get him out of a usurer's clutches. Many and many a loan has been granted for this purpose, with the very happiest results, to poor wretches who, almost ruined by usury, had scarcely a shred of solvency left. But all this has to be inquired into carefully by men who know the applicant, know his circumstances, who can watch him, verify facts, and who have a strong personal interest in not exposing, themselves to loss. ' That is not enough. The borrower, when receiving the loan is required rigorously to bind himself to its employment only in the manner specified, on the outlay for which it has been approved subject to the penalty of having it called in at very short notice (generally four weeks), should he fail to carry out this engagement. This is the ADDENDi I/ 173 APPENDIX No. 3 process in praise of which the Duke of Argyll surely a judge of authority has written these words. ; Your system of strict payments and watching the loan is ad- mirable. ' ' ' But even that is not enough. The borrower must engage to pay interest promptly and to repay the principal by regular instalments, which are, for educational reasons, and also to ensure good, business-like management, unmercifully exacted. Banks will forgive anything rather than unpunctuality in meeting obligations. (Co-operation Credit Banks, page 28) .' I have said that a bank does not care to inquire into the proposed expenditure of the money that it loans so long as the security is good. The same custom prevails in Europe, as is shown by the following words taken from Sir Horace Plunkett's evidence before the Select Committee of the House of Commons of England on money lending, that sat in 1897 and 1898. On page 99 o the report of 1898, Sir Horace said : < A bank lending to a farmer does no't go into the question as to whether the business is likely to repay the loan, but the bank simply looks to the material security that the farmer is able to offer.' I may add that the agricultural co-operative credit society started in Ireland mostly through the labours and perseverance of Sir Horace Plunkett, and there are now over 230, have all adopted the rule here spoken of. As to the value of such a rule, Sir Horace Plunkett says further on: ' Xow, I might point out that the special features of the system, which seem to have this educational and elevating effect, are what are known as the " approved pur- pose'' of the loan. This seems to educate the people up to a point where they dis- tinguish between the two kinds of borrowing the borrowing to increase 'their expen- diture and the borrowing to increase their production. When they are clear upon that point, and when you get a whole district banded together 'to enforce the observ- ance of the principle that poor people must only borrow except in cases of dire neces- sity to increase their production, the whole difficulties of the system disappear, and we find that the people are ready to take any amount of trouble, to make atny sacri- fice, in order to master the details of the system and to put it into operation.' He adds also that another great advantage of the system is the surveillance over the application of these loans. Thus it is seen that two distinct features distinguishing the loans of a co-operative credit society are, first, the stating of the object for which the money is borrowed; and, second, the control whereby the association makes it sure that the funds are not wasted and the borrower made poorer. As the question discussed now relates to productive credit, the following extract from Mr. Wolff in ' Co-operative Credit Banks ' shows the undeniable advantage of this form of association as a force applied directly to production : ' But while it was mainly for the benefit of the smaller industries that this par- ticular form of co-operation was originally designed, and while it has abundantly proved its utility in that sphere, it would be a mistake to suppose that its utility must cease in any branch of industry now carried on by many small producers, if the intro- duction therein of some new method or process shall give an indisputable advantage to the larger system of production. It is really in such a case that co-operative bank- ing may be expected to yield its most valuable resul'ts, since it is there that it can most contribute to the realization of the comprehensive views with which co-operation, as a general system, has from the first been associated. This it can do, and, in a greater or less degree, already has done, by serving as a stepping stone to productive co- operation, in which the advantages of aggregated capital are combined with those of divided ownership. It may safely be affirmed that the measure of success in productive co-operation would have been far greater than it has had the way for it been more generally paved by co-opera'tion in the comparatively simple and practicable form of the loan association or credit union. The habit x)f saving inaugurated by joining such an association, and this, too, by the small beginnings which alone are possible to 174 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 most of those who enter such societies, is strengthened by. exercise and encouraged by the fact that every sum paid in becomes a ( t once an active capital and begins to earn something for its owner. And if, after the lapse of years, during which this habit of saving has been confirmed, the spirit of association quickened and the principle of co-operation made familiar, the member of a co-operative credit association, or people's bank, finds a favourable opportunity to join in some co-operative enterprise requiring a larger investment, he now has an available capital which by insensible growth has attained a respectable magnitude. Moreover, he has had a preliminary training, one of whose most valuable features is that it is of a kind to familiarize the kind with the application of practical and businesslike principles and methods to co-operative pur- poses, and is, therefore, calculated to predispose those who have enjoyed its advantages in connection with co-operative banking to the use of similar principles and methods in co-operative production. 7 (Page 15.) MAXIMUM OF LOAN. Another very important feature which can be considered as an effective safeguard against grave abuses, is the fixing of the maximum amount that can be loaned to a member. That a good many financial or loan societies have been ruined by abuses which could have been prevented by a rule prohibiting the loaning of large sums to one individual need not be demonstrated. Unfortunately the fact is well known and no- body can have any doubt upon the danger of allowing a free hand to the officers, how- ever reliable and deserving, of confidence they may be, in such an important matter. Abuses are liable to creep in at any moment, and it is far better to put once for all a bar that will prove effective under any circumstances. No wonder that in connection with all the other numerous safeguards, these associations have thought necessary to adopt such a beneficial measure for the better safety of the members' funds. The general meeting of the society determine the amount that an individual member is allowed to borrow upon securities deemed good by the Credit Board, and not a dollar can be loaned in excess of the maximum so fixed. This maximum can be increased or decreased by the general assembly of the members upon the recommenda- tion of the board of management. This recommendation is necessary in order to prevent any possible surprise or too hasty a change. By this proceeding, the question is well matured, and the members keep full and complete control upon one of the most important subjects in connection with the loan operations. AGRICULTURAL CREDIT. In Europe the agricultural credit is a question that has been the subject of a long and warm debate. Without going into such a question, which the eminent econ- omist Leon Say, has already set at rest by proving that there is indeed only one credit, applicable to all human industries, and that there is only one difference arising from the nature of the various industries, that of time to obtain the return expected from the outlay made for labour and raw material. Agriculture requires a longer term be- cause of its special conditions, time being an all-important factor that nothing can replace or shorten. Hence the necessity of granting to farmers a special term that is based on the length of time necessary to raise their crops and to sell them advanta- geously. In Canada farmers require credit as elsewhere, and as in European coun- tries a large proportion of them can have and do obtain credit from the ordinary joint stock banks. In the west, for instance, the capital necessary for the moving of the crops is readily available either directly or indirectly. There the farmers' operations are carried on a more or less large scale, and the yearly necessity referred to is well provided for to the mutual advantage of the bankers and of the farming community. The same thing occurs in other parts of our country where the conditions are more or less similar. But apart from the moving of the crops requiring a large amount of funds for a very few months, there are others and numerous much similar needs or of a different kind, that are not adequately satisfied, because there does not exist ADDENDUM 175 APPENDIX No. 3 a special machinery quite adapted to these wants. In these cases credit to be adequate should run for a much longer time than the banks can afford. Of course mortgage credit is available, but for 12 or 18 months or more, it is a very expensive credit, on account of the incidental costs which raise the price of money to an abnormally high figure. In eastern Canada the agricultural credit for small farmers is almost entirely unprovided for except in a very primitive sort of way, and in most cases, more ruinous than advantageous, leading very often to very bad results, involving the farmer in endless troubles and, as a consequence, the selling of the farm at sacrifice. That kind of credit is wanted more or less everywhere and would do immense good if well or- ganized as it is in a co-operative society. It cannot be denied that such a society can alone exercise the proper restraint and control upon the use of credit in order to pre- vent in a large measure the abuses which are disastrous in so many cases. That is the experience here as well as in every country of the world. The credit given out by the village association is the right kind of credit, because the borrower, as just seen above, has to state why he is borrowing it, and the association make a point to watch the employment of the money so obtained. This question is discussed by Mr. Wolff in the following lines: ' Again, there is banker's credit already available for farmer banker's credit of a kind. Not the free, ready credit always obtainable as a matter of course, and always to be depended upon, such as the trader may claim, and does not claim in vain; but an occasional loan on "character" or rather on the security of property which the farmer is supposed to possess, or on standing crops credit which is intended rather to help the borrower out of a difficulty than to supply him with the means for engaging in some profitable enterprise. ' There is always a smack of favour about this kind of credit and a suspicion of embarrassment. It seems to cut a notch into the borrower's financial reputation. In any case, it is a matter of bargain and negotiation, to be treated for in every particular instance, granted for a certain length of time, stated or understood, and is, accord- ingly, resorted to only in the hour of neefl very often when credit comes too late to be of any use. It is a specimen of what M. Leon Say has well stigmatized as " illegitimate " credit " consumer's credit," M. Leroy Beaulieu calls it credit given to meet expenditure already incurred, credit which accordingly cannot yield a profit; as contrasted w.ith "legitimate'' or "productive" credit, credit given for a purpose of production, which may, if judiciously employed, assure a gain.' (People's Banks, page 65.) Again : ' I come back' to the question which I asked above : Why cannot ordinary credit provide for the farmer what he needs? * There are very potent reasons, one of which the president of the Imperial Bank of Germany, Dr. Koch, made very clear when speaking upon the subject of credit to agriculture not long ago in the German parliament. ' Returns,' so he says, ' are in agriculture incomparably slower than in trade and industry. As a rule, it may be said that a twelvemonth is required for turning over a sum invested. If there should be a failure of crops, or any other misadventure, one year may not suffice.' Dr. Koch quotes Professor Marchet as laying down in his standard book on " Agricultural Credit " that the farmer is not in a position to repay his debt till after the close of the " period of vegetation," and that at that point of time he can repay it only on the supposition that his new harvest should prove ade- quate for making good the deficiency of the last. That very uncertain factor "nature," so Dr. Koch observes, " enters into the calculation. It is from this cause as well, and not only because the turnover is in agriculture so much slower than in other callings," that the difficulties arise. The Imperial Bank of Germany, so Dr. Koch went on to explain, " an institution corresponding in importance in Germany to what the Bank of England is among ourselves advances to agriculture in the course of the twelve- month not less than 12,000,000. Generally speaking, he added, the farmer wno bor- 176 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 rows the money is not at all aware of the fact that it is from the Imperal Bank that he procures it, because he collects it from brokers and dealers who act as interme- diaries. But these men would be wholly unable to grant the credit had they not got the Imperial Bank at their back an institution strong enough and willing to grant such inconveniently long loans. ' Other bankers who deal in credit to agriculture entirely confirm Dr. Koch's statement. " L'echeance agricole," so remarked to me M. Scotti, director of the People's Bank at Acqui, which does mainly an agricultural business, " n'est que nomi- nale." Losses are infinitesimal. But you can never tell when the money will come back to the bank. So it is at Lodi, at Cremona, at Rovigcx, at Augsburg, at Gotha, at Cosel, at Insterburg. At Insterburg I have found that there were agricultural loans outstanding which had been running for more than fifteen, even up to twenty years. * Agricultural credit then is a kind of credit which it is not worth the ordinary banker's while to give; in the first place, because it is asked for an inconvenient length of time a time which may be altogether uncertain, and which will certainly be too long for occasional lending and too short for permanent investment. The banker and the capitalist lend as a matter of business, not as a matter of philanthropy or public duty. Conditions must be made somehow to square' with their interests, or they will have none of it. There is no other unwillingness on their part. They are ready to undertake any business,- which will keep them safe and give them market value for their money.' (Page 68.) The conclusion which one cannot escape is that credit has to be organized under a special form to suit special conditions and circumstances, and that co-operation, alone can adequately answer the purpose, without injuring in any way the banking operations, on the contrary, in helping them by the general prosperity that would result. CO-OPERATIVE CREDIT ASSOCIATIONS MUST BE ESSENTIALLY LOCAL. One of the main principles which must be strictly adhered to is that a co-operative credit society should always restrict its operations to a very limited area, a munici- pality or a parish, as the case may be. It must be a local organization to be safe and successful. The force of this rule has been proven again and again,; it has been conh firmed by prosperity to 'those who have followed it, as well as by disasters to those who have been tempted to violate it, in the hope, no doubt, to increase their profit. The very nature of such an organization prohibits any very extended area, and the moment this is neglected, other methods much inferior from the point of view here set out, based on pure commercialism, have to be adopted to comply with the necessities of a new and wider field in order to avoid ruin. The same safeguards no longer hold good, because the situation becomes entirely changed, and the results must inevitably be of a doubtful character. Where safety was the rule uncertainty prevails, and credit becomes timid on account of the ignorance in which the association is about the good reputation and honesty of those appealing credit to their help. As stated in 'the following quotations, this form of co-operative association must be essentially local in all respects to be sure of a successful career. Mr. Nicholson states as follows the numerous advantages to be derived from such local institutions: * Of all these classes of banks, those established on co-operative and possibly com- munal principles, are most strongly recommended, in that they promote not merely cheap and facile, but safe credit, that they admit of grouping the banks into unions for support and mutual assistance, that they develop thrift, temperance and foresight beyond all other forms of bank, that they are consonant with the ideas of village life and associated village effort, that 'they tend to prevent the too rapid or complete dis}- integration of the village into individual units, that they develop joint action in matters even more essential than credit, that they tend to substitute helpful co-opera- tion for the struggle of competition, and that they teach unselfishness, mutual assist- ADDENDUM 177 APPENDIX No. 3 ance, and self-help as principles of life in a way that no other credit societies can accomplish.' (Page 21.) And in his recommendations with which he concludes his very valuable report, he says : ' The decisive advantage of village banks are as follows : (1) Their absolute proximity to the borrower; (2) their ability to excite local confidence and consequent- ly to draw in local capital; (3) their exact knowledge of their clients and their influ- ence over them as co-villagers; their consequent ability to prevent fraud and to dis- pense with searches in registration offices; (4) their power of making the smallest loans and of undertaking operations, however petty, in consonance with village cus- tom and individual needs; in fact, of giving preference to small business; (5) their ability to dispense with any prior general liquidation of debts such as have been do- manded as a preliminary to the establishment even of Taluk banks ; they would ascer- tain in each case the borrower's prior debts, arbitrate with the creditor for a favourable settlement for cash down, pay down the sum settled, and accept the debt as due to themselves; (6) their ability to work cheaply, almost gratuitously, and thus to provide cheap credit; (7) their retention of local capital and of all profits thereon, within the village, and, in the case of co-operative societies, their retention of all profits for the members and borrowers; (8) their ability to act as agents and brokers for their mem- bers in the sale of produce and purchase of necessaries; (9) their capacity of acting as village granaries, lending grain for maintenance, and seed in ordinary years from their own resources, and in time of distress from those resources supplemented by state or other grants ; (10) their ability to act as intermediaries between the state and the individual, whether in matters of loans for land improvements, cattle, etc., or in other agricultural or industrial developments, or in times of seasonal stress; (11) their power of influencing borrowers towards the true use of credit, and of watching the utilization of loans in accordance with contract; (12) their ability to prevent fraudu- lent defaults and collusive sales of property, and in cases of default, to utilize advan- tageously the small properties accepted as securities for loans; (13) their tendency in the case of co-operative banks, to group themselves into unions for mutual develop- ment, instruction, inspection and audit; (14) their steady educative influence in matters of thrift, association and self-help, by their continuous presence in the village, by their continuous object lessons, and by their frequent, though small, calls upon the activity, thought and service of their members; (15) their tendency to develop high forms both of individual capacity, of public life, and of national character. Or finally, and most desirably, they may be true co-operative societies and banks, operating through, for, and upon the members, stimulating and collecting their savings, calling forth habits of thrift, economy, and prudence, guiding their outlay into productive channels, giving them credit for productive and useful purposes, promoting co-oper- ative dealings in sale or purchase and stimulating activity, union and associated ac- tion among the too isolated units of village life.' (Page 372). On the other hand, Mr. Wolff emphasizes his views in the following strong words : 1 The banks are on the spot and identified with the locality. Accordingly, local people take a sort -of pride in their success. Moreover, they are administered by peo- ple of the local population's own choice, persons whose names generally stand for safe management. They have not only, like the official savings banks, a slot in their wall through which to receive money, but a mouth wherewith to give advice and a heart wherewith to feel. In their keeping, depositors may, so to speak, ' see their money, see it safely held, see it laid out profitably in the locality, benefiting the district, and producing more money, whereas in the official savings bank it disappears, to go no man rightly knows where up to the large monetary " wens, " where it helps to embarrass instead of serving to help.' (Co-operative Credit Banks, page 24.) And in his book 'People's Banks' he strongly deprecates the idea of opening branches, which is an indirect violation of the local principle that should be adhered to in its entirety: 178 INDUSTRIAL AND CO-OPERATIVE SOCIETIES * 7 EDWARD VII., A. 1907 'Even co-operative loan associations, it has become plain, from experience col- lected, more especially in Italy, must not step outside the district within which they are genuinely local and co-operative, unless they would miss their effect. Cb-operative banks endeavouring to extend 'their work over a wider district by means of branch offices, where there was not sufficient touch, found themselves making a loss. The branch districts afterwards organized their own independent banks, based on touch and mutual knowledge of one another among members, and the new institutions throve. The losses sustained by co-operative associations in Germany in the course of their operations occur almost without exception amongst such as have attempted to work outside their own district or without a recognized district at all.' (Page 23.) Mr. Peters is of the same opinion, and affirms that co-operative credit associations must be ' essentially local in their character.* From this it results that the members especially in the smaller country towns are to a great extent personally known to one another ; while the managers are also well known to the members, and have themselves the best opportunities to learn the character and circumstances of every applicant for a loan and the reputation of every new candidate for membership. Their loans, too, are made in the very district and that of limited extent within which their mem- bership is obtained; so that the securities upon which they depend can always be kept under observation/ (Page 115.) This shows conclusively that that principle should be strictly enforced. To depart in any way from it would be a fatal mistake that would tend to destroy the very foundation upon which those associations are to be built up to be truly co-operative in character and in fact, not mere speculators' concerns got up for profit's sake derived at the expense of an innocent and deceived public, led away by the word co-operation without the substance. THE RATE OF INTEREST. Happily here the question of the rate of interest is a very secondary one-, as it is to be settled by the interested parties themselves. However, it is well to say a word or two with reference to it. Generally, the rate is fixed by the board of administration elected by the members. In arriving at a conclusion the board have to consider the average rate of interest prevailing in the district for loans and the necessity of reward- ing the thrifty who provide the funds. This is an easy question to solve to the general satisfaction of all concerned, for no such society can be in a position not to offer greater advantages than any money lending individual or institution, on account of the very modest expenses of management. As Mr. Peters points out: ' Even where the rates of interest obtained by the co-operative banks seem some- what high, they are usually far lower than those paid by the same classes of bor- rowers before these institutions appeared. Moreover, under the new conditions, the high rates operate effectively as an extra inducement to saving, and by thus increas- ing 'the supply of capital and the consequent competition among lenders, they tend to their own cure.' (Page 15.) It is nevertheless needless to insist upon this point, as the members of the associ- ation have the matter in their own hands and can make their opinion prevail whenever they wish by electing a board representing their views on this point as upon any other. SUCCESS OF CO-OPERATIVE CREDIT ASSOCIATIONS BASED ON SIMPLICITY OF BUSINESS AND WELL DEFINED RULES. Taking a general survey of the question, to what must be ascribed the wonderful success of that form of organized credit? Mr. Wolff answers this question as fol- lows : ' Lastly, there is the simplicity of business. Raiffeisen rules most positively inter- dict " banking," or business, or risk, or speculation of any kind. Their " business " is simply to lend and to borrow. If a loan should go wrong, under such circumstances ADDENDUM 179 APPENDIX No. 3 you know exactly what you can in the worst case be made liable for. That 1 or 10 absolutely limits your loss. There can be nothing ulterior. And joined to this sim- plicity of business is the simplicity of business arrangements, bookkeeping, organiza- tion, and so on. Everything is simple, everything is intelligible.' (People's Banks, page 149.) The association lends to its members and borrows from them by receiving their savings, either as shares or deposits. Nothing could be more simple, the more so still when one considers the conditions under which this is to be done. There is nothing, too, that resembles banking, properly speaking; nothing that has the risky character of such dealings, but everything tends to impress the mind that such an organization is rather a kind of economic family working in its own interest and for its own good. Speaking of the success achieved by the 'Banca Popolare di Milano,' Mr. Wolff says: ' Summing up the history of the bank, Signor Mangili ascribes its success to the gratuitous rendering of services by the officers, the non-limitation of its capital, the smallness of the payments exacted, the restriction of each member to one vote, the refusal of confidence to any member who has shown himself undeserving of it, the preference given to credit services over profit, and the exclusion of any hazardous operation.' (idem,' page 219.) These causes operate to the same extent if not to a much larger one, in any asso- ciation, however small it may be. In fact the smaller it is, the more indispensable^ the rigid application of the above principles, the outcome of experience and wisdom." SUCCESS OF THE CO-OPERATIVE CREDIT ASSOCIATION. Without giving an elaborate statement on the great success of these institutions as evidenced by their spread in all civilized countries, with a very few exceptions in- deed, it would be interesting to have a general survey of the situation as outlined by the authorities who have made a special study of the question. Although the data upon which they based their appreciation are almost ten years old, nevertheless they show a magnificent record. And far from having been stationery since, the movement has steadily grown in surface and in importance during the last decade. France alone has more than tripled its then record, and Ireland has since taken a prominent place with its 230 agricultural banks organized through the valuable and noble work of Sir Horace Plunkett and the Irish Agricultural Organization Society. India has also began the good work by the passing of a law on co-operative credit, and the formation of a good many such local associations, as evidenced by the report of the Kegjstrar quoted elsewhere. In case I may be taxed with being too enthusiastic about the results of this move- ment, I beg to specially draw attention to the following lines borrowed from as great an authority as the Indian Committee, presided over by such an eminent finan- cier as Sir Edward Law, minister of finance of India, and having in its membership the manager of the Commercial Bank of Calcutta, Mr. Keginald Murray. This re- port says : 1 The " agricultural banks " which have been so successful in improving the con- dition of the poorer classes in European countries rest upon co-operative credit, and we have confined our attention to banking on this basis. In concluding that a system of co-operative credit is capable of affording great benefits to the agricultural com- munity of this country we have the g.eneral support of the opinions expressed in the reports recently received from local governments which we have had the advantage of consulting.' (Page 1.) In Italy the movement has evinced a marvellous vitality and has produced re- sults that have provoked the admiration of such an eminent economist as M. Leon Say, late Minister of Finance in France. In his book, ' Dix jours dans la Haute Italic, ' in the opening page, he states : 180 INDUSTRIAL AND CO-OPERATIVE SOCIETIES * 7 EDWARD VII., A. 1907 ' It was not for love of art, but for the sake of the agricultural credit, that I took a rapid run through Upper Italy. I brought back with me many striking impres- sions which I desire to set down in this paper. Later on, when at leisure, I will take up again the inexhaustible subject of the history of Italian savings, which at this moment I can only skim over, and I will then try to draw from all the institu- tions, whose organization I have admired that which, in system or in form, might be usefully tried in our country. ' This remarkably eulogistic expression of opinion need not be commented upon in order to see the force of t, coming as it does, from such a high authority on those matters. Wishing thirteen years later, in 1896, to publish a new edition of his book, he asked his friend, M. Eugene Rostand, president of the great Savings Bank of Mar- seilles, and an enthusiastic apostle of private initiative or self-help, to report on the progress o the movement he had admired in Italy in 1883. M. Leon Say in his letter to M. Rostand wrote : 1 This expansion of the little Italian associations caused me to become enamoured of individual initiative, and more and more disgusted with state socialism.' In his very able and comprehensive statement prepared in answer to Mr. Say's request, Mr. Rostand states: ' Regarding co-operation credit, to what must we assign the stability of those Italian associations of popular credit amidst the upheaval that swept away so many ordinary monetary institutions ? To the superiority of their princples; the extreme subdvision of their operations and the preference given to the smallest of them; the avoidance of speculations, the moderation of profits, the disinterestedness in the man- agement wherever these principles were observed they assured salvation. Wherever there were failures it was because they had been infringed. And to what is due the tenacious ardour that prevented panic or abandonment? To the energetic spring of local sentiment, a result of economic decentralization ; an example by which our patriotism should profit for the sake of 'that France which is abandoned to an exces- sive concentration of savings and of assets. 'How could we not be struck with the vitality that such a movement awakens? Everywhere does it draw new strength, from the educative virtue of trials as from the spirit of emulation. The truly national services that, through its economic effects, it renders are singularly increased by its moral effects; it strengthens every form of assistance 'that mutual help gives to the working people; it unites the national ele- ments instead of weakeneing them by antagonism; it paves the way, through the internal peace of souls, for social peace. 1 A spreading vitality is that which imparts to all parts of a nation the ceaseless exercise of its forces; free local action, approved and sustained individual initiative, encouragement rather than impeded association, co-operation creative of cheap living, the minimum of misunderstanding and division between classes, devotedness of the best and most contented to the fulfilment of civic and social duty, a taste for practical advancement without excluding the spirit of tradition. . 'What special virtue is there not in decentralized action? All that autonomic local activity, springing from rights, but also from the will to exercise those which we lack, and which careful Frenchmen claim so far, also, in vain under the name of decentralization. 'A wise decentralization constantly engenders energetic individualities and vigorous enterprises.' And now, Mr. Wolff, in his book, 'People's Banks/ is not less strong on the success and possibilities of this movement. He says : ' What untold riches these People's Banks have within the forty-six years of their existence made available for small folk's needs, what millions they have added to the wealth of the countries in which as M. Leon Say testifies, "they flourish ADDENDUM 181 APPENDIX No. 3 throug Jiout ; " what vast amount of misery, ruin, loss, privations, they have either averted or removed, penetrating wherever they have once gained a footing, into the smallest hovel, and bringing to its beggared occupant employment and the weapons wherewith to start afresh in the battle of life, it would tax the powers of even ex- perienced economists to tell. Propagating themselves by their own merits, they have overspread Germany, Italy, Austria, Switzerland, Belgium. France is trying to graft them upon her own economic system. Kussia has in her own rather primi- tive way followed the excellent example. Servia and Roumania have adopted them. And now we hear of their spreading from Italy into far Japan. China has got some- thing like them already, while we in Great Britain scarcely yet know of their ex- istence. The solution has all the more to recommend it among ourselves, because it is essentially based upon a principle of which this country has long been regarded as the specific home, the principle of self-help. Self-help, it is quite true, has of late, gone a little out of fashion. We are taught sometimes to lo'ok at the other deities to bring us out of the Egypt of want and distress. Nevertheless, whatever it be re- served for State-help to accomplish, in England self-help is not likely long to want adherents. Unfortunately we have thus far given to this great power only half its practicable application. " It is self-help " phonographed, early in 1890. Mr. Gladstone to a delighted body of correspondents across the Atlantic, who thought that they had never heard their co-operative principle so neatly and tersely vindicated : " It is self- help which makes the man ; and man-making is the aim which the Almighty has every- where impressed upon creation. It is thrift by which self-help for the masses, depen- dent upon labour, is principally made effective. TJI them thrift is the symbol and the instrument of independence and liberty, indispensable conditions of permanent good. " 1 Yes, that is admirably said, and with the truth of Mr. Gladstone's words no one will be disposed to quarrel. That is the interpretation which we have thus far put upon " self-help. " " Save, lay by, economise, make the most of your pence, alike in provident accumulation and in economic outlay, " that is the familiar counsel which for many a year back we have persistently addressed to our poorer brethern.' (People's Bank, page 4.) This was written in 1896. We find that since valuable efforts have been made in England to introduce this system of co-operative credit associations. In his report to the Paris congress held in 1900, Mr. Devine, secretary of the Co-operative Banks As- sociation, could say: 1 In 1894 were founded the People's Bank of Nottingham and that of Newport ; in 1895, that of Finsbury Park, London, which is almost exclusively composed of workmen and the shares of which, set down at 1 pound sterling, are payable at the rate of 6 pence per week; in 1898, that of Tottenham Court Road, London, established for the purpose of helping small traders. In 1899, at London, the Association of Co- operative banks, under the presidency of Mr. Yerburg, member of parliament, was es- tablished. Its aim is to favor the propagation of rural and urban credit ; its principle is religious and political neutrality. Its action brought about the founding of the People's "Rank of Bpthnel Green and of Stepney in London, of Yardly in Birming- ham, and of Hull, Yorkshire. All these banks are of limited responsibility, with small shars of 1 pound sterling, payable in amounts of a few pence per week. They are affiliated, for a small consideration, to the central association, which gives them advice, while still leaving them their autonomy.' (International Congress of Popular Credit of 1900, page 24).' The report of the Sixth International Co-operative Congress, held at Budapest in 1904, contains very valuable statistics on the co-operative credit movement and the spread, of co-operation generally. From this source, I gather the following figures relating to the leading countries of Europe. An attempt to give a full description of the extension taken by this form of association in every country would be too long to be introduced here. 158-413 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 In Hungary, according to the report just referred to, Count Mailath, member of the House of Magnates, said that in 1903, the number of co-operative credit societies was 1,653, with a membership of 366,721, a collective share capital of 34,040,734 crowns, and reserve funds of 2,284,738 crowns. And Count Mailath adds that 'the figures show that the number of societies has more than doubled in two years/ which fact, he says, is due 'to the legislation. In France, according to M. Charles Gide, an eminent economist and president of the Central Committee of the French Co-operative Union of Distributive Societies, the number of co-operative credit societies which, in 1902, stood at 873, had by 1903 grown to 1,038. In Germany, Dr. Hans Criiger, chairman of the Central Union of the Credit Societies, states that the total number in 1904 was 13,299, with 1,600,858 members, and total assets amounting to $517,176,407. In Austria, Mr. Carl Wrabetz, chairman of the General Union of Austrian Co- operative Societies, reported that in 1903 there were 6,445 credit societies, with, besides 312 in Bohemia, 232 in Moravia and 11 in Silesia, making a total of 555, or a grand total of 7,000 societies for the Austrian empire, Hungary excluded. Including this country, this brings up the total to 8,653 credit societies for the empire. Italy had 2,500 co-operative credit societies, with a membership of 594,894 and an annual trade of 606,783,401 francs. In all this huge movement of funds what is most striking is the comparatively small amount for each society, showing that each one is moving in a small area, but doing nevertheless, in its sphere, very beneficial work indeed. Taking all the countries of the world, there cannot be any doubt that the total number of co-operative credit associations is now over 35,000, and if co-operative societies of all sorts are counted, the grand total should reach fifty-five thousand, with many millions of members. INDIVIDUAL EFFORTS HAVE BEEN THE SOURCE OF THIS VAST MOVEMENT. After having studied the co-operative movement, affecting more particularly thrift and credit, a question naturally arises in the mind of every one: What has been the source of this vast and beneficial expansion? No doubt the framing of good and liberal laws has had much to do with the spread of this movement; the governments and parliaments of the various countries well advanced in civilization have contributed a large share in giving force to the efforts made, but it is noteworthy that the main par*t of the success is to be attributed to private individuals, who have fought with courage until they had reached the goal of their constant labours. Mr. Nicholson was so struck with this peculiarity 'that he could not refrain from mentioning it in a special paragraph of his report. He says : 1 But it is noteworthy that the great popular movements in 'thrift, self and mutual help have invariably emanated from individuals and not from authority as usually understood; Schulze-Delitzsch laboured, and the German popular banks came into being; Raiffeisen toiled through long years, at first with slow success, till thousands of societies call him "Father" Raiffeisen; Luzzatti and Wollemborg, in Italy, have equal claim as pioneers of the Italian movement; the savings banks and building societies of Great Britain and the United States are the outcome of individual effort.' (Page 14.) Mr. Nicholson could have added the names, of Mr. D'Andrimont, in Belgium ; Count Karolyn and Count Mailath, in Hungary ; Eugene Rostand and Charles Rayneri, in France. This shows that the force of strong convictions, founded on sound principles, can accomplish much where direct state interference would prove almost of no avail and give but very scant results. It is an admitted fact that wherever governments have tried directly to organize a popular movement on economic grounds they have invari- ably failed, because, no doubt, people expected them 'to do everything and to put up any amount of funds. Indifference at least was the answer of the interested public, while a hasty and fruitful response was obtained by a propaganda emanating from ADDENDUM 183 APPENDIX No. 3 individuals strongly impressed with the usefulness of their labours for the cause they had espoused. The government in France, under Napoleon III., has tried the experi- ment, and has utterly failed in his attempt. The same thing has been done in other countries and the results have been nil. Good liberal laws is the best weapon that can be put in the hands of those who wished to work out co-opera'tion for the benefit of the masses. TWO BASIC PRINCIPLES OF CO-OPERATIVE CREDIT. The Paris Congress of 1900 passed the following resolution on the subject em- bodying their views upon the best methods to foster such a movement, and the very principles upon which these associations should be organized. They proclaim that private initiative and free local associations should be the foundation of such a move- ment of credit: ' The development of co-operative credit should spring from private initiative and from free local association. The observation of its development in the countries where it has growoi confirms this view/ (Page 15.) CO-OPERATIVE CREDIT SOCIETIES IN INDIA. This vast movement could not have escaped the attention of the world of high finance and of banking,. The Bankers' Magazine of London, England, thought it would be interesting to its readers and in its issue of February, 1902, pp. 253 to 257, published the following article signed by Mr. Eeginald Murray, manager of the Com- mercial Bank of Calcutta, and member of the special committee appointed by the government of India in 1901. As coming from a financial and successful banker of considerable standing, the following lines penned by Mr. Murray carry a great deal of weight: ' Your readers have, of course, heard of the Raffeisen' banks or societies on the continent, but few, perhaps, knows how successful they have been and how extensively they have assisted and attracted, by a system of mutual credit and responsibility the agricultural and industrial classes. As allusion has lately been made in the London papers to Mr. Sutton Nelthorpe's Agricultural Bank in Lincolnshire, and Mr. Rider Haggard's letter to the Daily Express has given so much information concerning, the Raffeisen system, it is needless to include further description in this preface to the report of the Committee on Co-operative Societies in India. I have thought it ad- visable to preface this publication of the report with the above remarks, so as to show that there is in the United Kingdom, as well as in India, a state of things calling, not for monetary support, so much as intelligent organization. The conditions in India as regards wealthy banks and companies is, of course, quite different to those which obtain in the mother country, but the conditions as regards the great majority are not dissimilar, although the deserving majority are probably greater and more helpless out here than at home. The condition in India is aggravated by the fact that credit of a kind is granted to the suffering majority. But it is of a kind which leaves the recipients worse off than they were before and reduces them to the condi- tion of bondsmen. The great majority in India are agriculturists, weavers and other industrial hand workers; also clerks on small salaries. The majority so-called, is very many times larger in India than in the United Kingdom, and probably the conditions approach more nearly to those obtaining in Italy. In any case, it is clear that if agriculture and industry do not pay the labourers they cannot be progressive, more especially in a country where the failure of an owner of property involves litigation which may be extended over several years before new proprietors can be admitted and obtain full rights. 1 Before transcribing the report of the committee which met at Simla last June, I beg to offer a few explanatory remarks embracing briefly the general intentions of the legislation proposed. I had the honour to be invited to serve on the committee INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 as a banking expert, and trust that I was not wholly useless. But my chief impression,, when the work of the committee was done, was that I had gained much more informa- tion than I had given. Every member of the committee was in one way or another an expert on the subject. Reference to the subjoined reports of Mr. F. A. Nicholson, of Madras, and Mr. H. Dupernex, of Cawnpore, give evidence exhibiting very consid- erable knowledge and application. Mr. Wilson, the Settlement Officer of the Punjab, is one of the ablest civilians in India. Mr. J. B. Fuller, now secretary of the Depart- ment of Revenue and Agriculture, has during his service been one of the most energetic of district officers, and has taken more than usual interest in all that con- cerns village life and agriculture; and Sir Edward Law's varied service as president of two international finance commissions, in Constantinople and Athens, has been suck as to give him an experience which few of his predecessors holding, the portfolio of finance have brought with them. Tne principal experts of the committee were Mr. F. A. Nicholson, Member of Council for Madras, and Mr. H. Dupernex, a compara- tively young civilian of Cawnpore. It is not possible within the range of this article- to include more than the notes of these two officers which are attached to the report but those who wish for fuller information can obtain it from the perusual of Mr.. Nicholson's two volumes alluded to in the report, and to Mr. Dupernex's useful little- book entitled People's Banks. The evidence given before the committee by Mr. E. D, Maclagan, Settlement Officer, Multan, and Captain Crosthwaite, Settlement Officer, Dera Ismail Khan, is not only interesting, but exemplifies in a marked degree the different ideas and customs which have to be dealt with and specially provided for- in various districts or provinces. It is necessary to understand these details in or- der to appreciate the difficulties which must attend legislation framed with the ob- ject of bringing home to a population, varying in social and religious customs, ac- cording, to the district, but each doggedly conservative and suspicious of innovations, that they can by very simple organizations very materially better their conditions. ' The report of the committee is brief but comprehensive and hardly needs any further preface, but for those who prefer a general summary the following may afford a useful guide to the salient points of the argument. It need only be added that Lord Curzon has taken the subject in hand to assure your readers that the legislation pro- posed is not likely to be allowed to wither, but will be pushed to its furthest practical application. ' The first consideration before 'the committee at Simla was the exceptionally- unfavourable position of all the poorer classes in regard to credit and inducement to save money. Then followed the obvious suggestion that no improvement could be obtained until the cost of borrowing on the part of these classes was reduced below the rates at present charged by native money lenders. Hence it was determined that improvement of credit was the chief desideratum, and that the only discernible means of improving it was by mutual co-operation. The general idea of the public as to the- objects of the present proposed legislation has been that the government were going to establish a kind of credit mobilier in order to pay up the outstanding debts of agriculturists and release them from the toils of 'the money lenders, and naturally it has been asked, What will the government have as security when they have done so?' This was the course suggested and attempted to be put in operation by Sir W. Wed- derburn in 1882, but failed, as it must always fail, from the fact that any attempt to- reclaim such debts not only entails the advancing of crores of rupees, but also induces debtors, in collusion with the money lenders, to vastly increase their indebtedness with the object of increasing the amount of assistance which they hope to receive. And thereafter how is the government, or whoever advances the money, any better off than the money lender as regards security? Now, the letter's rate of advance is on the- average not less than 25 per cent per annum, and frequently is equivalent to 50 per cent or even higher. In the northwest provinces and the Punjab, 25 per cent is the unquestioned minimum for advances to agriculturists. In addition, the money lender secures to himself the sale of the crops at a fixed price, which is generally much below, the market value. ADDEXDUM 185 APPENDIX No. 3 1 Allowing that the conditions of these advances are extremely onerous, it would be opposed to ordinary reason, or would pre-suppose a very low status of intelligence among the masses, to conclude that the original burden of usurious interest was not induced in a large degree by the insecurity of the borrowers. " Insecurity " is, of course, an indefinite negative, and is here introduced antithetically, as will be pre- sently explained. The chief point is, that lending for agricultural purposes and also for native industrial purposes has long since reached the stage og usury, the effect of which is, as experience infallibly shows, the gradual effacement of the borrower and his credit, and the reduction of himself to an unproductive cypher. Consequently, agriculture and native industrial enterprise are heavily handicapped and are unpro- gressive. ' The causes which have brought about the regrettable condition of the working classes, who are by no means deficient in intelligence or application, are social and religious customs, which, however good and appropriate they may have been at the 'time of their inception, have become fossilized and unyielding in practice; but owing to centuries of changing and usurping dynasties, none of which established a perma- nent or extended system of government until the British began to rule, these customs have come to be regarded, and have to some extent acted as a governing and protecting influence, much in the same way as the rules of secret societies. But their influence has been essentially to deaden the springs of human action and expanding intelligence, and to confine both one and the o'ther within the narrow limits of a traditional past without regard to the pressing necessities of a^ rapidly evolving present. * Hence, it becomes logically evident that, before advances can be granted on moderate terms, something must be done by the borrowers themselves to improve their credit and make them free agents; because, naturally, they have at present nothing to offer as security, either actually or prospect ively. It is absurd 'to suppose that they can all at once improve their credit, whatever they do or is done for them, to such an extent as to clear heavy debts already contracted, but 'their is nothing to prevent them from improving their credit to an extent which may enable them to derive a larger surplus from the result of their present and future labour and intelligence, and with such surplus gradually pay off their old debts. To enable them to do this it is pro- posed : To pass an Act and frame special rules for the encouragement and formation of co-operative societies on similar lines to those of the friendly societies in England and the Raffeisen societies on the continent. 1 The argument is that one man wanting to borrow money has to pay rates of interest which defy all possibility of his ever reaping the just fruits of his labour and intelligence, but if a number of men offer their united security, the terms on which they can obtain advances will be considerably easier. Co-operative credit societies, therefore, have for their object 'the banding of inviduals together in order to obtain money at reasonable rates of interest, and to distribute the money so obtained among their members, and only among them, in small sums and under fixed rules. The margin of profit between the rates at which societies borrow from outside and lend to their members should gradually create a reserve fund, which, being indivisible, must annually improve their credit. ' The motive power of these societies must be self-help, and it is recognized that to create self-reliance the government must interfere and assist as little as possible, the action of the latter being confined to showing the people how to act, and to provid- ing legislation and rules for their guidance and protection. 1 Experimental societies already formed in the northwest provinces and the Punjab indicate that co-operative credit is well understood and appreciated both by borrowers and lenders, and the latter have, in many instances, already come forward with money to advance to such societies on reasonable terms. In Madras, there has been for many years past a system of Nidhis, or native banks, founded and used for purposes which have a partially co-operative effect, and it is conceived that these will quickly remodel their systems in order to obtain the privileges and exemptions which the legislature propose to afford to co-operative societies. 186 INDUSTRIAL AND CO-OPERATIVE SOCIETIES - 7 EDWARD VII., A. 1907 ' Therefore, it seems probable that the government "will not be called upon, unless in very few districts, to make loans for the promotion and support of co-operative .societies; nor, beyond the inspection by a registrar or other district officer, will the government direct, regulate or interefere with the free action of the committees ap- pointed for the management thereof. The Raffeisen system has been so eminently suc- cessful on the continent, that with conditions equally or more favourable for its growth, it is difficult to doubt suitability and success in India. 1 The proposals now under consideration will not for some time directly affect the operations of the ordinary joint-stock banks, but in proportion as co-operative societies accumulate wealth by means of extended credit they will tend to increase the volume of interchangeable commodities, and when that happens the ordinary joint stock banks are bound to derive benefit, both in the form of deposits and custom.' CO-OPERATION IN GENERAL. In the preceding pages one form of co-operative associations has been somewhat fully examined, the figures as well as the appreciations given relate only to that form of co-operation, but from this it must not be implied that I have lost sight of the wonderful benefits already derived from other forms of the same principle as applied to the various economic fields. I have the greatest admiration for the marvellous re- sults achieved by distributive and productive co-operation. The good that the work- ingmen in towns and cities, as well as the agricultural classes have derived from both is so striking that it deserves the highest praise. To prove this I need to refer only to three countries where, under different forms, co-operation has been most beneficial to the humbler classes. England is at the head of all so far as distributive co-operation is concerned. In 1903 the total number of co-operative societies was 1701, (among whom were 146 productive societies), numbering 2,116,127 members; the share capital was 27,017,278, the sales were 89,216,223, and the profits had reached 9,873,385. A very interesting feature of these societies is their house building. In 1903, 344 societies reported as follows : Houses built and owned by the societies. 8,247 Houses built and sold 5,080 Houses built by members on advances made by the societies 23,940 Total houses 37,267 Money expended by societies on houses owned 1,658,810 Money expended by societies on houses sold to members. . 1,141,2(57 Advances by societies on houses built by members 5,327,078 Total 8,127,155 Such splendid results tell their own story in a forceful language, and are of a very encouraging nature to all. Let us now consider what co-operation has done for agriculture specially. Denmark, the gem of agricultural co-operation, stands as an example to be follow- ed by all countries. The International Alliance Congress report of 1904 contains these very striking statistics: Members. The co-operative societies for common purchase now have about .' 200,000 The co-operative creameries 150,000 The co-operative slaughther-houses 67,000 The egg export centres 65,000 Total 482,000 As compared with, in 1901 400,000 ADDENDUM 187 APPENDIX No. 3 The total turnover of these societies was : In 1901 12,080,000 1902 12,890,000 1903 14,214,000 And their total production of butter, bacon and eggs : In 1901 9,800,000 1902 10,570,000 1903 11,414,000 As the total exports of Denmark during 1903 were somewhat under 20,000,000, it will be seen that the exports of the co-operative societies, being 11,414,000, amount- ed to 57 per cent of the total exports from Denmark. Switzerland, another small country like Denmark, is using co-operation as a very effective means to better the conditions of 'the poorer classes. The report above quoted states: 1 The imposing roll is really to be accounted for by the fact that the law is dis- tinctly favourable to the formation of socie'ties under the co-operative name, being elastic and applicable to almost every variety of common action. Nevertheless, the majority of the 4,400 societies spoken of may be looked upon as genuinely co-operative. ' Among the various groups composing the total given, the largest, in point of numbers, is that of societies placed in the service of agriculture, and formed to assist in the production or else the sale of agricultural produce. Foremost among such are the co-operative " cheeseries," numbering by themselves, about the middle of 1903, 1,536. Next follow, at a rather respectable distance, co-operative distilleries, societies for the sale of fruit or products of the same, wine and honey, and for pasturing cattle in common on the high Alps. Taking all agricultural co-operative -societies together, we find that there are about 1,700 or 1,800.' And further on: 6 Next to this class of societies for common sale of products, follow, in point of numerical strength, the societies formed to serve for the common supply of goods or the common utilization of means of production. There are about 1,200 of these. Of that number, about 500 are agricultural, rendering their members excellent service in the common purchase of fertilizers, feeding stuffs, implements, seeds, &c.' And these telling examples could be multiplied if necessary, for Germany, Bel- gium, the Netherlands and other countries have many thousands of such societies giving as good results and promising much larger ones in the future. Even Canada, although having no general law to foster their establishment, has already some co- operative associations doing well, as proved by the evidence adduced. This shows what could be expected from the working of a good law. CO-OPERATION IN THE BARRACKS. In order to give an idea of the almost unlimited possibilities of co-operation, I . may be perhaps allowed to quote the interesting paragraph that follows, borrowed from the monthly review ' L'Emancipation,' published at Nimes, France, by M. de Boyve, a veteran of this movement in that country: 1 We knew, thanks to " 1'Union Militaire " of Italy, the advantages and benefits that co-operation procures for the oificers. . Two recent communications inform us what co-operation can accomplish for the soldier. ' One comes from 31. Cheron, Under Secretary of State in the War Department : ' The other day/ said he, speaking from the tribune of the House (sitting of De- cember 10th, 1906), in a visit made to the infantry barracks at Havre and at Fort Saint- Adresse, ' I found, working in the most satisfactory way, co-operative associa- tions for consumption. I took the trouble to acquaint myself with their tariff. One can have a bock of beer for five centimes (one cent), a cup of excellent coffee, five 188 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 centimes (one cent) ; moreover, the profits realized at the end of the month are suffi- cient to organize petty concerts, entertainments for the benefit of the soldiers, 'to give them a pass-book of " La Caisse Nationale de retraite pour la vieillesse " (old age pension fund). On this subject, an officer explains the working of that national old age pension fund that a great many French citizens are not cognizant of, it is sad to have to say so. They have done better still. With these savings, funds are sent to the wives of married soldiers. ' I am in favour of this co-operative principle for another reason that I will briefly point out. We have stated that we wanted to educate, from a social point of view, the citizen while in barracks. Well, then, co-operation is one of the best means to give that social education. It is thus that we shall train the working classes and that we shall get them ready to take their legitimate share in the economic administration.' The other communication has been made by a superior officer, Commandant Grat- tau, at the last general meeting of the National Anti-Alcoholic League. 1 We have made,' says this officer, ' at Fontainebleau, at the Lariboisiere barracks, a conclusive experiment which can be applied to all the French army whenever the min- ister desires. ' We have opened in connection with our reading and writing rooms, a special room where a soldier while resting after his labour, can get, at the rate of two cents, a cup of coffee, tea or chocolate and in summer, cool beer. ' All beverages consumed are of the first quality and are most carefully prepared before being served. ' At the end of 1904 the results were as follows : Francs. Gross receipts 3,690 15 Expenses 2,82015 Net profits 870 05 ' At the close of October, 1906, we had as a general result : Francs. Gross receipts 28,472 20 Expenses 21,648 '37 Net profits 6,82383 1 What have we done with these profits ? ' We divided them into six items : Francs. Manager (a soldier selected by his companions, receiving fr. 0-35 per day and 5 per cent of the profits). . . . Improvements to the library 457 15 Provident fund for the benefit of all the men in the battery 356 26 Entertainments given in the room 566 25 Retiring fund (each man having his own pass-book) .... 2,980 50 Improvement and rest fund 1,682 36 6,823 83 1 As a result of the opening of such a room, we have had the pleasure of witnessing a total absence of serious punishments, not one court martial was held, not one case of disciplinary court, almost no more confinement to jail or barracks. ' Our gunners rarely leave the barracks ; they are contented to stay in, enjoying the home-life there. ADDENDUM 189 APPENDIX No. 3 * What has been done at Fontainebleau in one unit of the French army can be done as well in the 4,000 units (batteries, squadrons and companies) which compose the army. ' If this example was followed by all the regiments of France, the total receipts would be 21 millions ; all expenses paid (establishment and maintenance), there would be a general profit of 9 millions with which the provident funds, the libraries, &c., could be subsidized without calling upon the state to do so/ 7 EDWARD VII. APPENDIX No. 3 A. 1907 EXHIBITS Exhibits Nos. 2, 8, 4, 5, 6, 7, 8, 9 and 10 are not printed. 7 EDWAHD VII. APPENDIX No. 3 A. 1907 EXHIBIT No. I. [Translated.] CONSTITUTION OF 4. At its first sitting after the annual general meeting, the council of administration shall choose a president, a vice-president and a secretary, who shall ..nsl.ituto (lie executive of the board (bureau). They remain in office until their successors are appointed the following year or until replaced during the year, if necessary, by the majority of the council. Article 65. The president, vice-president and secretary of -the council of admin- istration are likewise the president, vice-president and secretary of the association. Article 66. The council of administration meet as often as may be necessary in the interest of the association. The presence of five members of the council is necessary to make valid the deci- sions thereof. Article 67. Decisions are adopted by the majority of the members present. When the votes are equal the president has a casting vote. Article 68. A register of the proceedings of the council of administration is kept by the secretary. The minutes are signed by the president or by the member who replaces him, and by the secretary. Article 69. The council of administration are vested with the most extensive powers and, in particular : 1. They admit or refuse admission to shareholders; determine the conditions for the transfer of shares and the withdrawals of shares; 2. They accept regulations and pronounce" upon the expulsion of members; 3. They appoint and remove the employees, determine their duties, fix their sala- rit s and name the employee or employees who shall give security and fix the condi- tions and amount thereof; 4. They determine the expenses of management; 5. They adopt all the by-laws relating to the organization and good working of all the branches of the association; 6. They make out the balance sheets and propose the dividends to be paid; 7. They determine the manner in which the moneys of the reserve, provident and other funds are to be employed; 8. They propose to the general meeting such changes as may be necessary in the by-laws ; 9. They may delegate to one of its members or to the manager powers not incon- sistent with the duties of his office; 10. They take all the measures they may deem advisable in the interest of the asso- ciation not within the jurisdiction of the general meeting or not inconsistent with the present by-laws or the law. Article 70. The management is entrusted to a salaried official called the man- ager, who may, in addition, perform other duties. Article 71. The manager represents the association under the immediate super- vision of the council of administration, and as such he signs for the association. He attends the sittings of the council of administration when he does not already form part thereof, and has the right to express his opinion. Article 72. The manager has full control over the staff. He proposes the appoint- ment, suspension and dismissal of employees to the council of administration, who decide the same finally. Article 73. In the event of the temporary or extended absence of the manager or in the case of a vacancy, the council of administration appoints a provisional or per- manent substitute, as the ca?e may be. Article 74. The general meeting select yearly from amongst the shareholders three members, who constitute the committee of supervision. Article 75. The members of the committee of supervision remain in office for one year. They are re-eligible. 200 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 They watch over all the operations of the association; frequently check the cash, the investments and securities; see to the carrying out of the by-laws, regulations and decisions of the general meeting; they can, if they deem it necessary, control each and every decision of the committee of credit, more especially with regard to loans and renewals thereof; they must ascertain the exact value of the securities in hand, and, in a woid, take cognizance of all the documents they deem useful for the performance of their duties. They are bound to call an emergency general meeting of the shareholders if they find anything serious in connection with the management of the association's affairs or any violation of the statutory prescriptions relating to the administration of the moneys paid into the funds or of the securities exacted for the repayment of loans. They may, in the event of emergency or of extraordinary cases, suspend the sala- ried officials and members of the committee of credit, but shall at once report their reasons to a general meeting of the shareholders who shall decide upon the same. They shall, when the case is not of sufficient importance to necessitate the calling of a general meeting of the shareholders, report their observations in writing to the council of administration. The latter shall be bound to act accordingly, and, if neces- sary, to remedy the state of affairs pointed out so as to remove all subjects of com- plaint. Should the council of administration not act, refuse to take up the matter, or neglect to take the proper steps to remedy the state of affairs pointed out, whereof the committee of supervision are constituted judges, they may bring the matter before the next ordinary or special general meeting. Article 76. The members of the committee of supervision are chosen from amongst the shareholders who do not belong to the council of administration, the com- mittee of credit or to any other temporary or standing committee and who hold no office, whether salaried or not. , Article 77. The members of the committee of supervision are not allowed to. borrow from the association. In this respect their position is similar to that of the members of the committee of credit and management. Article 78. If one or more vacancies occur in the committee of supervision, the council of administration shall fill them definitively. The members so appointed remain hi office only during the unexpired term of office of their predecessors. Article 79. The members of fhe committee of supervision must meet as often as they deem necessary, and they submit a written report to every annual general meet- ing. Article 80. The committee of credit consists of the president and four share- holders chosen by the general meeting. The four shareholders so appointed must not belong to the council of administration nor to any committee. Article 81. The term of office of the four members of the committee of credit elected by the general meeting is two years. One-half of the members of such committee retire every year. The two who go out the first year are designated by lot, and afterwards they go out by seniority. They are re-eligible. Article 82. The committee themselves fix the days on which they meet and regu- late everything regarding their organization and internal working. Three members must be present to render their decisions valid. Article 83. No transaction in connection with a loan or advance can be made by the association without the previous approval of the committee of credit. Its decisions must be unanimously adopted by the members present. Should they not be unanimous, the matter is brought before the council of ad- ministration, whose decision is final. Article 84. They superintend the drawing up of the daily, weekly, monthly and yearly statements, as the case may be, of the association. EXHIBIT NO. 1 201 APPENDIX No. 3 Article 85. The manager and all the employees are bound to reply to the questions put to them by the committee of credit. Article 86. Should one or more vacancies occur, the council of administration fill them definitively. The members so appointed remain in office only during the unexpired term of office of their predecessors. Article 87. The general meeting, when regularly constituted, represents the whole of the shareholders. Article 88. The meetings are called at least two days beforehand by letters sent to the shareholders individually or by advertisements in a newspaper published in the locality where the association has its head office or in the nearest locality of said head office. Article 89. The general meeting takes place every year on the third Thursday of December or the next following judicial day. Article 90. The general meeting deliberates and enacts in connection with all the interests of the association and confers upon the council of administration all the additional powers that are deemed necessary. Extraordiary general meetings may likewise be called by the committee of super- vision, by the committee of credit, by the council of administration, and also on a requisition signed by ten shareholders. The president may call a general meeting of the shareholders at any time. Article 91. The general meeting is regularly constituted when ten shareholders are present. If that number be not present, another meeting is called with an interval of at least three days. The decisions of the second meeting are valid whatever may be the number of shareholders present. Article 92. The general meeting is presided over by the president and, in his absence, by the vice-president or by a shareholder chosen by the meeting. Article 93. Decisions are adopted by the majority of votes. When individuals are affected by such decisions, or when five or more shareholders demand it, recourse is had to the ballot. When the votes are equal, the president has a casting vote. No shareholder shall have more than one vote, whatever may be the number of shares he owns. Article 94. No one can vote unless he has been a shareholder for at least three months and is in good standing with the association. Article 95. The ordinary meeting receives the reports on the state of the affairs of the association, and pronounce upon all questions submitted to its deliberations. Article 96. The proceedings are recorded by minutes drawn up and entered in a register by the secretary of the association. The minutes are signed by the president and by the secretary. Article 97. Extracts from or copies of the minutes are certified by the secretary or by the president. TITLE v. Article 98. The fiscal year of the association begins on the first December and ends on the thirtieth November. Article 99. The manager, under the instructions given by the council of adminis- tration, draws up daily, weekly, monthly or yearly statements of the association's affairs. These statements show the position of such affairs from the beginning of the year to date. They are placed at the disposal of the shareholders by being posted up in the office or otherwise. An inventory is made by the manager at the end of each fiscal year. 202 INDUSTRIAL AND CO-OPERATIVE SOCIETIES 7 EDWARD VII., A. 1907 A report shows the exact position of the association's affairs by means of a clear and succinct summary, as also all the transactions during the past twelve months. The council of administration decides when it is necessary to publish what relates to the operations of the association and the best method of publishing the same. Article 100. After providing for all the costs of management and for losses the net yearly profits are divided as follows: 1. Twenty per cent to the reserve fund; 2. Ten per cent to the provident fund; 3. The balance is divided amongst the shareholders in proportion to the time that their shares have been paid up. However, this apportionment of the net profits cannot amount to more than seven per cent .so long as the reserve, provident and other funds are not completed as provided for by article 39. Article 101. The question of the dissolution of the association may be put at a general meeting specially convened for that object at the request of three-fourths of the shareholders and on the unanimous recommendation of the members of the council of administration. The dissolution cannot be voted if ten members oppose it. Absent shareholders may express their dissent in writing, which shall have effect as if expressed verbally at the meeting. Article 102. Not less than two-thirds of the shareholders shall be present at the meeting called to decide upon dissolution. Article 103. In the event of dissolution, the general meeting appoint three liqui- dators. for that purpose the liquidators shall have the most extended powers either for realizing the securities or for distributing the proceeds amongst the members after paying off the liabilities and costs. Article 104. The council of administration are constituted a board of arbitration in the case of difficulties arising between shareholders or between the committees and the shareholders or between the members of committees. Its decision is taken by the majority of votes and is final. Article 105. Should the council of administration be unable to act because one or more members thereof are interested in the dispute, arbitrators are appointed from amongst the shareholders by the parties in conflict each of whom chooses an arbitrator. The award of the three arbitrators is given according to the majority of votes and is final. Article 106. Every order to pay whatsoever sum eddressed to the association shall be signed by the payee. Article 107. Every proposed amendment to the by-laws or regulations shall first be sent to the council of administration, who deliberate thereon, and if they approve it, submit the same to an ordinary or special general meeting of the shareholders. Article 108. When necessary the council appoints from amongst its members standing and select committees for specified purposes. Article 109. The council may, within the provisions of the law, fix from trne to time the maximum amount that may be advanced to the association, taking care always to favour small savings as much as possible so as to foster -the spirit of forethought and a desire for the practice of strict economy amongst the poorer classes. Article 110. The committee on credit meet as the needs of the association require, at the call of the manager, or of the chairman or of two members thereof. Article 111. At their first meeting they elect a chairman for the year. The mana- ger is ex officio secretary unless the duties of manager are performed by one of the officers of the association, in which case the committee may appoint one of their num- ber secretary. Article 112.T The committee on credit examine all applications for credit, ascer- tain the solvency of the applicant as well as the moral and material guarantees offered, and decide unanimously as to the granting or refusal of the applications. EXHIBIT NO. 1 203 APPENDIX No. 3 When it is impossible to obtain an unanimous decision, the matter is referred to the council of administration. The committee shall always give the preference to smaller loans. They take all the necessary steps for the management of the current affairs of the association, see to the recovery of debts and the faithful fulfilment of the engage- ments undertaken by the borrowing shareholders. They report to the council of ad- ministration on the state and needs of the treasury and propose such measures as may be necessary for regulating the movement of the funds according to the exigencies of the situation. Article 113. The manager has charge of the securities, cash, books of account. He cannot in any case consent to credit being given a shareholder without the previous authorization of the committee of credit. He draws up or superintends the drawing up of a daily, weekly, monthly and yearly statements, as the case may be, of the association, of the balance sheets and inventories. He pays the expenses incurred by the association, but shall require proof that each item of expenditure has previously been approved by the council of administration or the president, as the case may be. Article 114. The salaried officials must strictly abstain, under penalty of dis- missal, from dealing either directly or indirectly, in any stock or similar speculations. Article 115. The manager and the various paid officials may be called before the council of administration, the committee on credit, the committee of supervision or any other committee that may hereafter be appointed as also before the general meet- ing, and must give all information in their possession with regard to the affairs of the association. Article 116. Everything connected with the accounts and statistical work is regu- lated by the council of administration. Article 117. Shareholders are entitled to pass-book bearing their names, approved of by the council of administration. These pass-books shall be presented at every operation. Article 118. The interest on money advanced to the association is payable only after the end of the year. The council of administration can, however, authorize the manager to dispense with this rule whenever he thinks it to the best advantage of the association. Article 119. The association reserves full liberty to itself with regard to the ac- ceptance or refusal of advances made by its members; it also reserves to itself the right to repay any advance or a proportion thereof on giving notice to the depositor by registered letter. Article 120. The president presides over the general meetings of the shareholders and over the meetings of the council of administration, maintains order thereat and decides questions of simple procedure. He has a casting vote when the votes are equal. He performs the other duties connected with his office. Article 121. The vice-president replaces *the president when absent and has all his powers. In the event of the president's inability to act, resignation or death, he succeeds him for the remainder of his term of office. Article 122. The secretary has the custody of the archives of the association; he draws up the minutes of the general meetings of the shareholders and of the meetings of the council of administration. He gives communication of the same at the meet- ings of the association and of the council. He performs all the duties connected with his office. Article 123. At the beginning of each year the council of administration fix the amount of the entrance fee based on the importance of the private assets of the association. 204 INDUSTRIAL AND CO-OPERATIVE SOCIETIES* 7 EDWARD VII., A. 1907 The foregoing rules have been adopted at a special general meeting held the twentieth of September, 1906. Levis, September 27th, 1906. (Signed) ALPHONSE DESJARDINS, (Signed) L. J. ROBERGE, President. Secretary. T, YC 34842 3 s UNIVERSITY OF CALIFORNIA LIBRARY