Maurice Dufourtnantell* Agricultural Credit CORNELL UNIVERSLLf^ LIBRARY BUSINESS 62DCtH«lEB8S 1 M Session ( SENATE DOOtTHENT No. 572 ai- ( AGRICULTURAL CREDIT ; GENERAL THEORY OF COOPERATIVE CREDIT IN FRANCE AND OTHER FOREIGN COUNTRIES L BY MAURICE DUFOURMANTELLE -. 5^=^== ' TRANSLATED FEOM THE FRENCH BY PAULINE CARTER BIDDLE Cornell University Library HG 2051.F8D86 Agricultural credit : general *e<>f V <}' 3 1924 019 223 258 PRESENTED BY MR. McCUMBER April 17, 1912.— Ordered to be printed ^'/| WASHINGTON GOVERNMENT PRINTING OFFICE 1912 ^ Hit AGRICULTURAL CREDIT/ General Thboey of Cooperative Credit — Example of Foreign Countries — The French System — What Should be Done. first attempts to organize people's credit in france. , We shall doubtless surprise nobody in stating that France was one of the first countries where the idea of applying cooperation to credit originated, but which nevertheless was one of the last where it was put into practical use. This is frequently the case with us. We have many ideas, there is even boldness in their conception, then when it comes to applying them in the realm of fact, a strange timidity is evident, or at least an insufficient sense of present contingencies. The history of people's credit in France offers a striking example of this frame of mind. In 1857 the first cooperative urban credit society ^ was founded in Paris, by some workmen, and called "Banque de Solidarity Com- merciale" (bank of commercial joint responsibility), based on the principle of savings and mutual aid. The idea of agricultm-al credit had not yet originated. It is estimated that in the course of the following years nearly 200 similar societies were founded in Paris and the provinces. The im- petus seemed given, yet 13 years later, in 1870, not hin g remained of this ephieineral movement ; for in fact the idea had strayed almost at the start from its original purpose, in some instances, through lack of specific training in those interested, they seeing in cooperative credit only a means of substituting for salaries a system of cooperative earning, based on production, and by their inexperience and impa- \ tience mutually compromising these two forms of association; in other cases, and this was more serious, the funds served to foment strikes and support workmen's coalitions. Is it to be wondered at that institutions directed in this way should have proved failures, of which some were notorious ? Is it surprising either that the cause of people's credit, discredited by these failures, Siould then have been obliged to wait nearly 20 years before again finding in France partisans and promoters ? 1 Under tUs title we give a summary of the theories and precepts which were the subject of several lec- tures we had the honor to deliver during March, 1908, at the headquarters of the Union Centrale des Syn- dicats des Agriculteurs de France. ' I have used the terms credit society and credit hank interchangeably, such associations being so called indifferently in Great Britain. (Translator's note.) 3 4 AGBICULTUBAL CREDIT. EXAMPLES FURNISHED BY FOREIGN COUNTRIES. While the French cooperators frittered away their time, their efforts, and their money, cooperative credit was pa^tiently and consistently building up in neighboring countries, with a clear view of means and end and on a sohd basis, a movement which has constantly increased and expanded from the begmning and of which the marked success excites to-day our admiration and envy. Prussia was the center whence the original idea of cooperative credit, conceived and appHed from the beginning in its exact and final form, spread over all Europe. Schulze-DeHtzsch and Eaiffeisen gave their names to this system, the former in carrying it out more particularly in urban centers, the latter realizing it midst rural populations, and this happened about 1848, nearly 10 years before the fu^t attempt, to which we have refer- red, in France. From Prussia the idea extended, little by little, to aU the other nations of Europe. Austria adopted it in 1851. The saine year Hungary attempted its first experiments. In 1864 Belgium inaugu- rated its special movement by founding the People's Bank at Liege, while at the same time in Italy, through the incentive of Signor Luz- zatti, similar banks were instituted at Milan and Lodi. The example gradually became contagious and the movement extended with varying success to Russia in 1866, to France in 1883, to Scotland in 1889, to Ireland in 1894, and spread to the youthful Balkan States, Roumania, Servia, Bulgaria, and finally crossing the seas, the idea took root in Syria, under German influence, in the AntiQes and India, through that of England, in Algeria, Tunis, Isle of Reunion, and Canada, through that of France. Such was the marvelous growth of those small but vigorous roots from which the first shoots sprouted some 60 years age at Dehtzsch in Prussia, Saxony, and Flammersfeld on the Rhine. Three countries that appear to me typical from different points of view — I mean Germany, Italy, and Hungary — deserve our particular attention. 1. Germany.— Geriasinj is without doubt the classic field of cooper- ative credit, formerly its cradle, and to-day the center of its ^eatest development. By January 1, 1907, 15,000 (exactly 15,602) cooperative credit societies, comprising an army of 2,113,653 members, were already furthering the unremitting activity of commerce, manufacture, and agriculture. The number of these associations, moreover, does not cease to increase from month to month. If we consult the latest statistics of the principal federations * for the years 1905-6, we find for 13,946 urban and agricultural cooperative credit societies, with 1,797,000 members, the following round numbers: Francs. Capital 302, 000, 000 Savings put to work 2, 500, 000, 000 Credit granted during the financial year 5, 700, 000, 000 Reserve fund 145, OOO, 000 V I General Federation Schulze Delltzsoh (Annual for 1906), Empire Federation of Agricultural Coopera- tive Societies at Darmstadt (Annual for 1906), General Federation of Manufacturine Cooperative Socfetles at BerUm (Annual for 1906). * ^ AGBICULTUEAIi OBEMT. 5 It is rather difficult to ascertain exactly what proportion of this prodigious supply of capital, placed at the disposal of national indus- try, is deToted to agriculture, as the people's banks make also agri- cultural loans but do not distinguish them in their statistics from those granted tp commerce and manufacture. It can, however, be estimated, without fear of exaggeration,' that agricultural credit participates in the general German movement to the extent of about 2,000,000,000 francs. How far are we in France from such results ? Moreover, during the 10 years I have studied and followed the cooperative movement of our German neighbors I have admired less its constant progress than its well-planned and solid organization, which has rendered such a remarkable expansion possible. We will take as an example in support of our statement the imperial Federa- tion of Agricultural Cooperative Societies, whose headquarters is at Darmstadt, and which is directed with so much authority and success by Counselor Haas. The plan of this powerful organization in its essential features is as follows: As a foundation, 16,800 federated agricultural cooperative societies for credit, buying, selling, production, etc., of which 11,896 are local banks for loans and savings. During my travels in Germany I have more than once come in contact, and this in regions very different in customs and economic develppment, with some of these associations. I have been impressed everywhere by the striking evidence of mutual confidence which characterizes them, the habitual self-control shown ■'by the majority of the associates, and at the same time by the almost invariably just and discriminating business sense of the presidents and directors. These primary associations are not left without support. They form, a secondary group of 41 provincial or district unions, that coordinate their efforts by bringing them together and inspiring them with a common purpose, the general assembly of each union uniting annually the representatives of the local societies. In the interval, contact is maintained with the latter, not only through incessant correspondence, advice, and consultation with the provincial office, but also by the visits of traveling professors and inspectors. Finally, 73 central societies, divided between the provincial unions, complete from a practical business standpoint the moral efficiency of the latter. Of these 73 central societies, 36 centralize in each province or dis- trict the purchase of initial products and working implements and the sale or transformation of products, whereas the 37 others are ' district credit societies or banks, whose duty it is to insure the clear- ing of capital and the transmission of loans between the local credit banks of their jurisdiction. In 1905, for the whole of their business, the total turnover of 35 of these district credit banks amounted to three and a half billion francs. The third group, or imperial federation, completes and perfects this whole organization. Toward it converge all the provincial ele- ments, the unions maintaining contact with the head office of Darm- stadt, the district credit banks uniting, some with the Central Agri- cultural Bank of the Cooperative Associations (headquarters at Darmstadt), others with the Central Bank of Agricultural Credit of 6 AGBICULTUEAL, CEEDIT. Neuwied. These two central organizations transacted business, in 1905, for moi;e than a biUion francs. This, in its essential lines, is the organization of the Imperial Federation of German Cooperative Societies. It may be character- ized by stating that it unifies these scattered forces to the best advan- tage of the economic interests of the country, and for my part, I am tempted to compare it to the solar system, where each heavenly body has its proper function, and all,'by their coordination and mutual attraction, contribute to the universal harmony. What we have said of the Darmstadt Federation might almost as well be said of the other great federations that participate in the German cooperative movement, be it the Raiffeisen Federation of Neuwied, or the Schulze-Delitzsch Federation of Berlin, 6r even the more recent federation of cooperative industrial associations directed by Dr. Mager at Berlin, but we have said enough, we think, to show how ardent and keen the sense of responsibility is among the German cooperators. I will moreover give to the entire movement the highest praise in stating that it is, in its origin and entire organization, a pure outcome of independent private initiative. For nearly 50 years the Government in Germany took no part in the cooperative movement; or at least did not intervene, otherwise than legally, in granting it an organic charter by the excellent law of May 1, 1889. But in 1895 a new influence was felt in certain Prussian rural dis- tricts. The agrarians of the north, the squires of the eastern marches, always in quest of official protection and privileges, demanded the intervention of the State in favor of agricultural credit, and the, Prussian Government, acceding to the wishes of this powerful party, presented and passed the law of July 31, 1895, establishing for Prus- sia a central bank of cooperative credit societies. In France, where the financial aid of the State is so marked a fea^ ture, the Prussian exanaple of 1895 has frequently been cited in sup- port of this system. Nothing could be more inaccurate. Without going into details, I will simply mention the fundamental difference etween the two standpoints. With us the funds that agricultural credit employs are mostly supphed by the State; the Prussian Cen- tal Bank, has, on the contrary, only received from the State for its transactions an original capital subscribed and guaranteed by 3 p^- cent Prussian Government funds and it, as central clearing establish- ment, utilizes the temporary surplus intrusted to it by tLe agricul- tural banks and the people's and savings banks. In other words the French system deals with shares of State capital supplied to credit banks run by private initiative, whereas the Prussian method , causes independent capital to be put to work by a State bank. The German cooperators, at least the great majority of them, did not allow themselves to be influenced by this intervention of the State. The Schulze-Delitzsch Federation is positively hostile to it, seeing in it a possible impediment to the sense of initiative. The Raiffeisen Federation, less absolute, utihzes the Central State Bank in so far as its own central Bank of Neuwied does not suffice for its needs, but regards it simply as a supplementary organization and not as a neces- sary part of the machinery of cooperative credit. Finally, the Darm- stadt Federation shares these views inasmuch that it did not hesitate to found, after the institution of the State Bank, a central independent ageiotjl/Turaij credit. 7 bank for its affiliated associations, in the hope that the day might conae when the latter would enable them to dispense with the State foundation, and it is with pardonable pride that the independent bank shows the comparatively modest figure of four hundred millions ■put to work by its own central pay office in opposition to the ten bil- lions handled by the official central estabhshment. 2 . Italy. — The organization of people's credit in Italy will not detain us long. The remarkable work on the subject done by the eminent president of the "Centre F6deratif," member of the institute, Mon- sieur Eugfene Eostand, and by mj?; distinguished colleagues, Messieurs Rayneri, De Rocquigny, and Mabilleau, render it unneccessary for me to repeat their vivid description of this splendid movement.^ So my intention is simply to relate its latest improvements and most recent tendencies. We had the good fortune to visit northern Italy last October (1907) and assist at the Congress of' People's Banks and the International Cooperative Alliance, held at Cremona. We returned deeply impressed not only by the immense vitality of Italian cooper- ation in that part of the peninsula, but also by the bold spirit of inno- vation, combined with great prudence, of which all codperators there gave evidence, as much those of the liberal party whose glorious and respected chief is His Excellency Signor Luzzatti, as those of the Cath- olic Federation of Bergamo, or again those of the Socialist Labour Exchange (Bourse Sociale du travail) of Reggio d' Emiha. When, for example, at Portogruaro and elsewhere, we find the agri- culturists united, becoming manufacturers of superphosphates, to escape from the exactions of the trust of manufacturing producers; when at Reggio d' Emiha we assist at the opening of a railroad, of which the building and running are in the hands of a socialist work- men's cooperative association; when, in short, we are told that at Ravenna there is not a single building contractor, as the entire trade is in the hands of workmen's cooperative societies, strongly organized, should we not admire the genius of a people who can afford the spec- tacle of a social and economic renaissance, no less brilliant within its strict limits than that of the sixteenth century was within the realm of art ? We hasten, however, to add that perhaps this cooperative expansion of contemporary Italy would not have been possible, or at least would have been rendered more difficult, had it not found support in an organization particularly adaptable and rich in people's credit. Eight hundred people's banks deal in urban and agricultural credit, 200 savings banks employing usefully for the devSopment of national production a large share of the savings made by national industry; finally, at the least, 1,400 agricultural credit banks; that is, a total of 2,400 institutions of people's credit — here in reality is the nutritive and productive source whence cooperative activity, individually and collectively, draws each year hundreds of millions. A powerful spirit of social unity pervades all these institutions. Ever ready to help each other, they form among themselves a large famUy and are animated one for the other by a brotherly feehng, of which they proved 1 Eug. Eostand:. Uue visiteS, quelques iDStitutions de prfivoyance en Italie, 1 vol., Paris, 1891; Intro- .duction k "Vix jours dans la Haute italie" de Lgon Say, 1 vol., Paris, 1896; Mabilleau, Rayneri et Se Rocquigny: la Pr^voyance sociale eu Italie, 1 vol., Paris, 1898. 8 AGEICULTTJEAL. CREDIT. the depth when the foundation at Piacenza of a central bank of agri- cultural credit, with an initial capital of 2,000,000 francs, was pro- posed. The suggestion had been scarcely adopted by the Congress of Cremona when the central bank was eagerly sought and endowed by the societies and cooperative unions. The People's Banks of Vicenza and Cremona each subscribed shares of 50,000 francs, the Federa,tion of Agricultural Syndicates subscribed the same amount, the Agricul- tural Syndicate of Bergamo, 20,000 francs, etc. In short, in less than a week the subscriptions already amounted to 500,000 francs. ■ . 1.1 * What can not be expected of a cooperative movement capable ot demonstrating its faith in the idea by such spontaneous impulses and, sufficiently wealthy to realize it, by giving money with so much ease 1 3. Hungary. — Italy has afforded us a remarkable example of what free private initiative can accomplish unhampered by any interven- tion of the State. With the National Central Credit Umon, founded 1898, in Budapest for the Kingdom pf Hungary, we shall find ourselves, on the contrary, in the presence of a State and gov- ernmental institution. The example of Hungary is often quoted by the partisans of State aid in support of their doctrine, and theoretically they are not wrong, but in ordBr to keep the question within proper bounds it is well to ascertain the Umits of this official intervention and show in what measure it has been carried out. This Union, or Central Hungarian Credit Bank, is not exclusivehr a. State institution, as has sometimes been erroneously asserted. It is rather more a composite organization constituted between the cooperative credit societies, and to which the State contributes, the sum total amounting to 4,000,000 kronen^ at the most. In fact, when this central society was organized the shares of the founders (individuals and local societies) represented 3,000,000 kronen, whereas the share of capital allotted by the Government amounted only to 1,000,000 kronen. Since then the founders have increased their subscriptions and the State has not, to my knowledge, done likewise. These explanations are of a nature to reduce the force of the State example. But there is more, for in the mind of the Hungarian legislator ' ' the final aim is that in time the National Central Credit Union shall become the exclusive property of the associations adhering to it and which are its ordinary members." ^ Therefore extreme moderation in accepting State aid, primary and provisional character of this aid, gradual substitution of the federated societies to the State, and, finally, the exclusive appropriation of the institution by these associations in the future — this is the exact scope of the Hungarian legislator's intention. THE SITUATION IN FRANCE, Sometimes the date 1899 is given as being that of the inaugu- ration of agricultural credit in JFrance, the law establishing State financial aid in our branch having been passed that year, but in > Krone, a little over a franc, roughly, 21 cents. (Translator's note.) s Comte de Mailath: Les Associations de credit populaire en Hongrie. (Bulletin du Credit Fopulaire, 1907, p. 333 et suiv.) AGRICULTTJEAIi CBEDIT. 9 reality cooperative credit had been implanted previously in our counti-y, through the efforts of private initiative, and if the State contributed toward its development, which we willingly recognize, by means of its financial intervention and the special service estab- lished at the minist&re d' agriculture, historical nonesty obliges one to acknowledge that the merit of starting the movement, of classi- fying and expounding the fundamental principles, and of furthering still to-day their diffusion among those interested, is due to independ- ent private initiative. In fact, from 1889 must be dated the definite awakening of France to the idea of cooperative credit. It is true that several admirable foundations had been previously organized, such as the people's bank at Mentone, founded in 1883 by our colleague Monsieur Ray- neri, or that of the Agricultural Credit Society of Poligny, started in 1885 by Monsieur Milcent, both in full prosperity still to-day, but these with some other institutions in various parts of the country, were only isolated and scattered efforts that were not connected with any general movement. At Marseille, in 1889, with the assistance of the few existing institutions, a first congress of people's credit was organized by some political economists interested in the question, Monsieur Eugfene Rostand presiding. A central office for study and propaganda was established, which adopted as a program the laying down of fundamental principles, that were compiled by means of the observation of foreign prac- tices; its object was also to spread this knowledge among the circles interested, and to further the institution of credit societies; this central office assumed shortly after its present title of "Centre f6d6ratif du credit populaire de France." ' Some years later a member of the bar of Lyon, M. Durand, founded a second center of action, independent of the first, under the title of "Union des caisses rurales at ouvridres a responsabilite iUimitee." With these two cen- tral organizations, cooperative credit was prepared to take root in our country, to increase and multiply.^ As secretary of the "Centre f6d6ratif," I may be allowed to state briefly what has been done in the last 18 years by this association: Fourteen congresses have been held, of which one met in Algiers; manuals for local and district agricultural banks and people's banks published; a periodical bulletin and pamphlets for disseminating the idea issued; model statutes of various sorts drawn up; a simple ■form of bookkeeping established and the registers given gratis to the affiliated societies; an inquiry office, of which my colleagues and I know the value; searches made in Italy and Germany; active propaganda by pen and word; finally, useful intervention with the public powers and the legislator; these are the essential features of ihe work done by the "Centre f6d6ratif." Its action has extended to Algiers, to Tunis, and even to the Isle de la Reunion, and one can estimate its influence by the fact that actually nearly 900 societies are affiliated with it. Moreover, to prove the spontaneous origin of agricultural credit, one need only refer to the first general statistics which we drew up 1 President, Monsieur Eugftne Eostand, membre de I'Institut; central office at Marseille, 14 rue Montaux. 2 Recently, in March, 1908, the district agricultural credit hanks have constituted a " FMfiration naKonale des Caisses r^gionales de crfidit agricole mutuel"; office in Paris, 84 rue de Grenelle. 10 AGRICULTTJEAL, CREDIT. in 1900 We noted, at that time 641 local credit societies in France, some affiliated with the "Centre f6d6ratif/' others with the Lyon union or remaining independent. It is clear that so rich a harvest could not have been the result alone of one year's apphcation of the law of March 31, 1899. , ■.••.• ,-^„ ;„ ihi^ No; to deny the work of independent private mitiative m thi& matter would be absurd, to pass it over in silence, unjust, a.nd every impartial historian of cooperative credit in France must render it due We^have stated what has been the work of private initiative in France. Let us now see in what consists the financial mtervention ot This consists in placing at the disposal of the district agricultural credit banks, established by the law of March 31, 1899, as a temporary and gratuitous advance, a lump sum of 40,000,000 francs and a yearly contribution of about 3,000,000 francs, paid to the State, by the Bank of France, as the price of the renewal of its privilege granted ia 1896. It is estimated that when the privilege of the cank ot France expires more than 100,000,000 will have been placed m this way at the disposal of French agriculture. So that these miUions may reach the rural producer by means ot the local banks, 90 district agricultural credit banks have been estab- lished throughout the country, and by then- medium, 1,700 local affiliated agricultural banks share in the official funds advanced. Moreover, the State, or rather the Government, by means of the official professors of agriculture and through the board of agricul- tural credit established at the ministere d'agriculture, contributes also toward propagating the idea and the foundation of local credit banks. In this respect, its action runs parallel with that of private initiative, each mutually completing the other. Actually, about 2 ,500 cooperative agricultural credit societies in France and in the colo- nies, are the result of this double movement, and one can not but hope that the efforts to spread it may coordinate and strengthen both in unity and harmony. WHAT SHOULD BE DONE. All we have just said will enable us to make a comparison between France and foreign countries, and to draw from this parallel certain conclusions in order to determine the course it is our duty to pursue, starting from the standpoint of private initiative, which is our department. In the first place what do we find within the limits of State inter- vention ? ' In Hungary, the State aid amounts to the moderate sum of 1,000,000 kronen. In France, to what will eventually amount to more than a hundred million francs. 1 This is what is done by Monsieur Drake, formerly dfiput^, in an exhaustive essay published by the Revue politique et parlementaire (number of Mar. 10, 1908): *'if we should class the works of cooperative credit acoordme to their merit, the first place would rather belong to that union of rural credit banks of Lyons, or that Centre ffid^ratif , that by their own efl'orts organized themselves and endeavored by a personal propaganda to further the economic education of their fellow citizens, and caused credit to flow like a refresh- ing spring in a number of small channels." It is, however, to be regretted that Monsieur Drake should have by mistake called the "Centre ffidfiratif " the "Centre f^ddratif du Sud-Est," whereas a few pages before he gave it Us real name of "Centre f4di5ratlf du credit populalre." AGMOtTLTURAL OEBDIT. 11 In Prussia, a State organization completing without effective official financial aid the action of a flourishing private initiative. In France, a system unlike any of those existing in the other great cooperative nations, a system which consists" in subsidizing a still youthful agricultural credit with gratuitous official capital. Within the limits of private initiartive the parallel between France and foreign countries affords a no less instructive lesson. Germany has shown us an incomparable expansion of powerful and prosperous institutions, classed in strongly organized groups, to which they contribute their varied abilities and from which they in return derive new financial power and acquire fresh moral energy. German cooperators have proved what can be accomplished with time, with patient faith, witn scrupulous respect for principles, with, in short, such confidence in self and in self-help, SelbsthUf, that they did not hesitate to found their own independent central bank opposite a State central establishment. Italy affords us a similar example, less complete in results, but perhaps more striking, owing to the diversity of methods employed, when we find national savings furthering people's credit by means of 2,400 varied institutions due to private initiative, that are ever ready to help each other mutually, without asldng anything from the State. We are less fortunate in France than happy Italy ; our laws, above all, our customs, neither authorize nor demand an extensive decen- tralized use of savings. We are even scarcely aware that our legisla- tion admits of our having, in a given measure, recourse to the savings banks, and as for that, it must be acknowledged, the savings banks, with the exception of certain ones, like those of Marseille and Lyon, that one finds at the head of every improvement — care in general hut little about people's credit which they ignore. Less convinced than the Germans of the necessity of concentrating economic forces, we have multiplied the federations. Each branch of agriculture has its own, independent of the neighboring one; in the same branch there are sometimes several — this may cause a loss of vigor, or be a source or rivalry, of moral antagonism or economic competition — and those that have the development of agricultural cooperation at heart must wish that these different federations may be brought closely together, and that they should combine their efforts. But it is above all important to rouse initiative, without doubt existing in our country, but too often hesitating. Those concerned must be brought to know themselves, to understand also their duty, and to acquire confidence in their own exertions. Let us teach them to keep up their effort, to persevere in the work undertaken. Let us try to convince them that nothing enduring is done in haste, that time is required to implant new institutions firmly in rural customs, but that the aim is all the more rapidly attained when these institutions are founded on sound and manly principles. And, now, if we wish to apply these general ideas to agricultural credit, this is the social duty jncumbent upon us. We should each, within the range of his influence, become active propagandists of agricultural credit, according to the established guiding principles. Let us show the rural population that without overlooking or dis- daining the advantages of State aid to agricultural credit, they must 12 AGRICULTUBALi CREDIT. not, however, count exclusively on this official help, and that it is in themselves, in their own efforts, in the manly consciousness of their capacity and sense of responsibility, in the decentrahzed use of local savings, that the secret of lasting success lies. Then when we have succeeded in starting foundations, we must not leave them to themselves', we must foUow them, and by our advice save them from mistakes always possible during the first years. Let us bring them together through district unions and organized federa- tions, so that they may participate in the same life and be governed by the same principles. When we have accomplished this task, and induced others to do likewise, not only will our consciences be at rest, but we shall also have demonstrated that France, in the matter of private initiative, is neither inferior to her German neighbor nor her Latin sister. II. The Uses to Which Rdeal Credit May be Applied. In referring to the diverse applications of which agricultural credit is susceptible, I will point out its object, show the services it can render, and cause, I hope, its benefits to be appreciated. My remarks will bear sucessively on the apphcation of agricultural credit to the requirements of agriculturists considered individually, and on its collective apphcation; that is, on its adaptation to the requirements of syndicate or cooperative associations, which farmers organize among themselves. It is scarcely necessary to add that my observations will aU be based upon the practical experience I have acquired in these matters, as secretary of the "Centre f6d6ratLf," or as president of the "Groupe regional de I'lle de France." In default of other merit, they will therefore at least have that of experience. But a remark of a general character is first necessary. The wants which credit may be caUed upon to supply are infinitely varied. Should cooperative credit come to the rescue of this one and that one without distinction? A distinction must be made between credit to be granted for the purpose of creating new wealth, or an increment of riches, and that which on the contrary would only serve to satisfy a want, sterile, from an economic standpoint. In the first instance credit is termed production credit and in the second case consumption credit. As much as the first is to be encouraged and is profitable to agriculture the latter is dangerous and should be set aside. In reahty when the farmer borrows to buy fertihzers to manure his field, the result of his transaction wiU be a better crop, which will enable him to recover the amount of his loan and make a profit over and above. Credit, in this case, will have served to produce an increase of economic wealth, representing at least the equivalent of the amount lent, and, in consequence, the farmer, his crop sold, will have an increased gain on hand, which will enable him to return the loan easily. In such a hypothesis, credit is useful, since it helps the producer to increase his wealth; this is also a safe transaction, as the equivalent is recovered in the crop it has contributed to produce AGBICULTTTEAL, CBEDIT. IS The position is quite different when the question concerns con- sumption credit. For instance, the agriculturist borrows to pay his baker. When the debt is settled, what will be left as an equivalent of the loan which enabled him to make this payment? Nothing. The loan granted will purely and simply have been spent, and instead of enriching him, the borrower will have only substituted one creditor for another. It can readily be understood what risks there are in such sterile credit, and moreover it is sufficient for us to state, in order to reject it from the list of our observations, that it is in nowise agricultural. APPLICATION OF AGRICULTURAL CREDIT TO PERSONAL NECESSITIES. 1. The struggle against usury.— ^^h.e utility in some sort elementary, of agricultural credit, consists in shielding the small farmer from usury, to which he so often falls a victim when he wishes to procure the necessary resources for his enterprise. In the country, when usury is mentioned, peasants generally shrug their shoulders and pretend it does not exist, so great is the false shame which prevents them from acknowledging they are victimized by it. According to their statements they could easUy find good credit at 4 per cent, which is the ordinary rate charged by the agricultural banks. Even admitting this is true, agricul- turists would still find an advantage in applying to the cooperative societies instead of vUlage lenders, for they would leave the profit of the transaction to their association instead of letting it pass into an outsider's pocket. But the truth is, in many localities, the agriculturists, and especially the small farmers, have great difficulty in finding an honest loan at a moderate rate of interest. Oh, without doubt, usury does not openly reveal itself by excessive rates of credit! It is hidden beneath inoffensive appearances. I remember having received several years ago in the Pyreneean district, some quite suggestive confidential communications. The lender was the local tavern keeper. Each loan was granted at 5 per cent with a commission over and above, but at every renewal rate and commission increased; then, at all visits made by the bor- rower, there was a forced opportunity to drink with his host and chance companions some bottles of wine, the price of which must be added to the rate of interest paid. At the end of the year the loan cost 15 or 20 per cent. If the matter could be investigated in our country, I am quite convinced one would find a number of districts in France where rural usury is more rile than one thinks. Usuiy under the form of money loans is moreover, perhaps, not the most frequent nor the most to be dreaded. The most danger- ous is that which is paid in kind, without letting itself be seen, under cover of the sale on credit, even gratis, of manure, seeds, cattle. The vendor in such cases causes the apparent service to be dearly paid for, as he reimburses himself the credit granted, either on the quahty or the quantity of the nierchandise sold, or else he puts in the contract clauses entirely to his own advantage, which place the agriculturist in his power or at his mercy. In this order of ideas, the agricultural syndicates have rendered marked service by having a moraHzing effect on the trade of fertilizers and grain, and in a great measure stemming usury, which was 14 AGRICULXUEAL. CEEDIT. practiced under cover of this traffic. But I dare not say tkat they have caused it to disappear altogether.. At all events they were unable to get the better of it in what concerns the cattle trade, as the code civil lends itself to it by its prescriptions on the cheptel (cattle At our Congress at Reims in 1902, our lamented colleague, Docteur Boiteux, president of the Credit Bank of Baume-les Dames, gave us some typical examples, which deserve to be repeated here. "A bullock of 2 years, estimated at 260 francs is leased (cheptel simple) for a year, September 1, 1901. September 1, 1902, he was sold for 360 francs. Each party received therefore 50 francs — this is an investment for the lessor of more than 15 per cent. And what feU to the profit of the lessee ? During this time the bullock could not be harnessed, except to accustom htm to the yoke, he did no useful work and made away with more than 50 francs of the lessee's fodder — that is to say, he absorbed all the latter's profits. Where a cow of 300 francs is concerned, it is stipulated in our contracts in Franche- Comte, that the calf shall not be sold until six weeks old; that is, when it will be worth 70 or 80 francs. This is an interest of 35 or 40 francs on 300 francs, which is then and there almost certain to fall to the share of the lessor, moreover we are speaking here only of cattle leases (cheptels) properly drawn up. But our farmers are exposed to a still more shameless usury, of which we must say a word. They in fact frequently buy cattle on credit, from cattle deal- ers, generally of Semitic origin, who operate in the following manner; as before we will quote an estabhshed fact, which is worth more than many explanations: A small farmer comes to buy a horse from one of these dealers. This merchant goes to the neighboring fair and purchases an animal for 440 francs. He sells it the next day to the customer for 750 francs, on notes, with interest at 5 per cent. To secure himself against the proprietor or other creditors he exacts from the lessee a cattle lease (bail k cheptel) including the horse and another animal already in the stable; wise precaution, the horse being only worth 440 francs. This is the usual process, and in the country with us these occurrences are so common that the first question asked by the board of the agricultural credit society is frequently this: "Is the apphcant or is he not in the hands of the cattle dealers?" '■ Similar instances were cited at our Congress of Nantes (1904) by M. Ayenel, professor of agriculture at Langres, who, studying the practice of cattle leasing (cheptel bfitail) in our eastern provinces, estimated that in so far as cows were concerned the lessor obtained easily 30 per cent for his money, and that this return attained even 50 per cent on sheep. We might also, if our memory does not play us false, quote s imil ar abuses in the Charentes and middle provinces. Whatever may be its geographical limits, the evil exists, and it will not be. the least service rendered by the agricultural credit banks to have caused this usury in kind to disappear, either by shielding the small farmer from the rapacity of the cattle dealers, or in purify- ing the practice of cattle leasing, by the use they, the credit banks, themselves make of it, in a moderate and honest maimer.' I ^^^."A^l^i}2^^f^^^''h "JW^"^'' populalre, Reims, 1902; 1 vol., 1903, chez Alcau, fiditeur k Paris. iVw x®S*/£i? -fs^™ Helped in this purifying work by drawing up forms of model contracts for cattle credit (credit Detail). AGEICULTUEAL, CEBDIT. 15 2. Purchase of raw material and farming implements. Beyond even the struggle against usury, how varied are the uses to which cooperative credit may be applied for the benefit of agri- cultural production. All branches of agriculture find an advantage in having recourse to it. In the northern and central provinces it helps to increase the yield of cereals, potatoes, and beets. In the eastern and western districts it furthers cattle breeding. In the south it is in a measure successful in meeting the acute situation in the wine region. The market gardeners in the neighborhood of Paris make use of it. In the Cantal district they think of utUizing it for replanting trees. One sees it working its way even into the daintiest or the lowliest agricultural industries, such as the cultivation of flowers in Provence or bee raising and honey making in the Dijounais. Neither ancient Eurotas or perfumed Hymettus had received such a gift of the gods. From this it can be imagined to what an infinite variety of uses agricultural credit lends itself. Here it wiU serve to purchase the entire quantity of fertilizers which the land requires to render its full yield. Elsewhere it will be called upon to help procure selected seeds,^ live stock which will be resold after fattening, farming implements, vines for planting, young fruit t»ees, or even the coal needed for horticulturists' hothouses or forcing houses. It will serve also to pay the hands employed in plowing or harvesting, without the necessity of displacing mvestments or holding funds for this purpose, to the detriment of farming expenses, properly so called. Without doubt, to make farmers understand the benefit they could derive from an intelligent use of agricultural credit; a certain time is requisite and great perseverance on the part of promoters. How often, for instance, I have heard countiymen justify their shyness ixi regard to agricultural credit by saying they always pay cash for their fertilizers. It was true, but what they did not say was that th'ey inanured their land according to the capital which they had in hand and not according to its requirements. Credit would have enabled them, on the contrary, to put on their land not only what they were able to give it, but, stiU more, what it needed for its fullest develop- ment. But also what profits the farmer can make with agricultural credit judiciously handled. Listen rather to this anecdote of a smaU cultivator of "Eure-et- Loir."i Said he: Eight years ago I was down and did not dare to borrow large sums; yet one can do nothing without money, whereas with money, in agriculture, certain paying deals can be made, and those by means of agricultural credit. Here is the proof. In 1898 I borrowed 100 francs to buy two unweaned calves, which I fattened and sold for 330 francs. In 1899 the credit bank lent me 150 francs to buy a sow; she shortly after gave me eight little pigs, which I sold for 202 francs 40 centimes, keeping the mother. In 1900 I needed a mare for my work; my purse contained 300 francs, about the price of an old animal which might possibly have done my work, but. without bringing in anything. ' I preferred borrowmg 300 francs from the credit bank— with my 600 francs I bought a young mare for 565 francs, which I sold at the end of two years for 910 francs. In 1901 I borrowed 200 francs to purchase a cow. I kept this cow two years; she gave me two calves and I sold her, about to calve, for 330 francs In 1902, in the month of November, one of my cows miscarried. As she gave very little milk and I had a great deal of fodder, I borrowed 300 francs to buy another. 1 See Bulletin du Crfidit populaire, 1906. 16 AGBICULTUBAl, OBEDIT. This enabled me to make a profit all winter. In 1903 I wished to buy fertilizers and change my crop. I borrowed 200 francs, with which I bought several kinds of fertilizers, and particularly some nitrate. I sowed the latter for the first time on 1 hectare 25 ares' of oats; to my great surprise the yield was 42 bags; that is, 17 bags to the arpent.^ In 1904, in the month of December, I borrowed 300 francs to help pay the lease of my land. This loan enabled me to keep a mare, which I needed to work my oats the following spring. Finally, in September, 1905, I borrowed 240 francs for six months. With this money I purchased 12 sheep, which I sold in January, 1906, for 408 francs. They had cost me, in bran and oats, 76 francs; my net profit, therefore, in four months was 92 francs, and I could still keep the sum borrowed for two months. I wished to give this example in detail, not only because it proves what an intelligent countryman, full of initiative, can do, but also because it shows the adaptability and the variety of uses to which agricultural credit lends itself. One must not think, however, from this example that our institutions are useful only to small agriculturists . No ; from the small to the great, all have interest in making use of them, and I need no other proof of what I state than that furnished me by the series of credit banks of the Isle de France district, where we find along with small loans of 200 and 300 francs, loans amounting to 6,000 francs and over. 3. Kegulating the price of agricultural produce. Moreover, it is not only at the yielding period that agricultural credit is useful to the farmer. When the harvest is over the crops must be sold, but if prices are low; is it not preferable to hold until they rise ? But how could the agriculturist wait if, without the credit bank at his command, he counts only on the sale of his produce to begin his work for the fol- lowing year ? It is a well-known fact that after the harvest or vintage is over the prices on the market have a tendency to weaken by reason of the large supplies on hand. To counteract this falling of rates, the syndicates, the credit federations, and the permanent committee for the sale of wheat dispensed their advice to the agriculturists, instructing them to hold their offers, so as to regulate the market and prevent the falling of prices. In all places where this counsel was acted upon the rates remained firm and farmers sold for higher value, without, moreover, suffering the slightest inconvenience while they waited, the credit banks having enabled them to meet all immediate farming expenses. To prove our statement, we will quote two striking examples among a hundred. Here is the first, taken from the department of the Alpes Maritimes, where some years ago the ohve crop was below the average. The growers, anxious to sell, threw their supply in quantities on the market and, owing to the falhng rates, lost the benefit of the profit they normally should have made by reason of the scarcity of the product. The olive growers of a district where there was a credit bank united in a common determination to hold their olives — they waited until they became scarce and at the propitious moment sold at the figure they wanted. In the meantime the credit bank had enabled them to meet the expenses of their industry. This is the second example, taken from the neighborhood of Chateau Gontier.' It is that furnished by a farmer who owed a sum of 1,500 1 Hectare equals 100 ares, or 2 acres 1 rood 35 perches, or neaxlv 2* acres fTran » See Bnlletln du Credit popularie, 1906, p. 407. AGRICTJLTTJBAIi CBEDIT. 17 francs. To cancel this debt he had, it is true, 500 boisseaux » of wheat for sale; but prices were low, it was in October, our man preferred not to seU, and borrowed for three months from the credit l)ank his 1,500 francs at 4^ per cent. In December- prices having risen, he sold his wheat and realized a net gain of 133 francs over and above the interest on his loan. These are in some sort scattered, not concerted, examples of the personal use to which agricultural credit can be put, their object bemg to protect the individual against the pressure brought to bear on pnces by wholesale dealers in agricultural produce. But if the resistance of agriculturists becomes general and they unite to sell their crops m proportion as the need on the market is felt, they will then lay down the law to purchasers, instead of submitting to their dictation— they will regulate, by their union and their discipline, the current rate of produce. Now, in one case as in the other, agri- cultural credit, as we haye just seen, is the effectual means which enables them to attain their end. APPLICATION OF AGEICXILTXIRAL CEEDIT TO COLLECTIVE EEQUIEEMENTS . Besides these varied uses to which agricultural credit can be put individually, practice reveals other very interesting examples of a collective character. The legislator has recognized their economic scope, by granting recently two special laws— on the one hand, the law of December 29, 1906, on long-term loans to the agricultural cooperative societies, and on the other, the law of January 14, 1908, extending to the members of agricultural mutual insurance societies the right to found credit banks among themselves for the purpose of facilitating agricultural operations carried on by these insurance societies. Here, moreover, as in the case of personal credit, private initiative had forestalled that of the legislator. Long before the law of 1906 the agricultural credit banks had practiced collective credit with success, and a very attractive notice of these operations had been already presented, in 1902, at our Congress of Reims by my distin- guished colleague Comte de Rocquigny. The question may be examined from the triple standpoint — that of the syndicates, the insurance societies, and the cooperative asso- ciations. 1. Agricultural syndicates. — The main function of agricultural syndicates consists m the purchase in common of large quantities of fertilizers that are distributed afterwards among the members in proportion to their requirements. Certain syndicates make their purchases in advance; others, on the contrary, according to the orders of the members, centralized at certain seasons. In both cases it is to the interest of the syndicate to pay cash for its orders, so as to reap the benefit of the discount wmch it allows its members. But this cash payment would lead one to suppose that the agricultural syndicate possesses sufficient funds for the purpose, acquired either through the dues of its associates or its accumulated reserve fund. This is the case with some large syndicates already mature and pros- perous; it is not the case with the majority of them. 1 Boisseau, a peck and a half. (Translator's note.) S. Doc. 572, 62-2—2 18 AGBICULTUBAL OKEDIT. It is, then that the credit bank iptervenes usefully in lending to the syndicate the amount required, precisely as it would advance to a private individual. The syndicate signs, in the name of one or more of its administrators, according to the by-laws, a note payable at three, months to the agricultural credit bank in e:5ichange for the borrowed sum; and if the syndicate wishes to protect itself against its own members jaothing prevents it from drawmg a bill on each one of them for the amount corresponding to his share of the order for fertilizers. Then, when the notes fall due, the syndicate repays the credit bank by means of the sums thus collected; and if certain members, in order to discharge their obligation, require to prolong the notes the syndicate only has to renew the loan for a corresponding amount, either by negotiating, at the credit bank, bills drawn on the members in question and accepted by them or else in making payable to the credit bank one or more new notes indorsed by its (the syndi- cate's) own debtors. . Many syndicates do business in this way, and I do not know that any of them have had cause to regret it. Certain agricultural syndicates, however, do not care to deal with collective credit, properly speaking. They prefer, whilst making a collective bargain for fertilizers with the contractor, to place as their substitute each one of their members unable to pay cash for his share of the supply directly in contact with the agricultural credit bank, whose loan is thus divided from the start into a certain number of personal loans. But what in these two hypotheses deserves to be borne in mind is that the intervention of the credit bank takes place in favor of a collective operation of syndicates; and it has been found that these collective operations of syndicates, based upon agricultural credit, were among the most effective methods of implanting cooperative credit in rural circles which hesitated previously to, make use of it. The purchase of agricultural implements, which the syndicate places at the disposal of its members, is also one of the most frequent and most appreciated services rendered by the agricultural syndicates. Here, again, for the purpose of making the purchases, the syndicate may have recourse to the credit bank. Li the case of implements of little value, such as pulverizers, stills, carts, etc., the operation is simple and a few montns suffice for the syndicate to repay the loan, as much from the hire of the implements to its members as from their dues. The transaction, on the contrary, is much more delicate where the acquisition of expensive machinery, such as steam or petroleum thrashing machines, is concerned. The loan then amounts to several thousand francs, which it would require a certain time to repay. In calculating the yearly instalment, the interest upon the loan must be taken into consideration, the probable cost of repairs, the rent of a shed for the machine, the premiums of insurance against accidents, and also (when they are not directly at the expense of the lessee) the expenses of the operator and the cost of fuel. AU this should be most carefully looked into by the syndicates and the credit banks before closing the bargain. Experience also shows the necessity of great circumspection in drawing up the syndicate rules in 6onnecti©n- with the use of the machine, in making the list of those members that are to lease it, AGBICULTTJBAL CREDIT. 19 and deciding the measures to be employed and proper delay to be granted for recovering the sums due by agriculturists. It can not be said that actually, by reason of the systems tried, the guiding principles of this operation have been definitely settled. However, as a result of the ventures made in the various depart- ments — ^le Nordjl'Youne, and in I'llede France, notably — the methods have begun to be somewhat more clearly defined, and at all events this special credit transaction deserves the attention and sympathy of the banks and agricultural syndicates. 2. Mutual insurance. — Since the law of January 14, 1908, was passed, it has been debated how agricultural credit could serve to further or to guarantee the operations of agricultural mutual insurance societies. The question is in fact new, and does not at first sight appear to be very clear, but the future will without doubt show in what measure, more or less extensive, cooperative credit and mutual insurance can combine and help one another. It will suffice for me to state briefly what connection already has been established between these two different kinds of institutions. In the beginning it was insurance, and particularly cattle insur- ance, that intervened to strengthen and support agricultural credit. It can be easily understood that the agriculturist whose stable or barn is insured offers a much better guaranty and a far more defi- nite standing than one who is not so protected. Cattle insurance (assurance b6tail) therefore increases the individual standing with regard to credit, the same as fire insurance increases the collective standing with regard to credit of the syndicates that own their real estate. On the other hand, credit can help agricultural mutual insurance societies by advancing on short terms the sums required to pay for accidents at the time the premiums have not been paid — in other words, in creating a casual and temporary cash fund. Opera- tions of this nature have already been transacted to my knowledge in the Vendee and the Department of the Seine. They are very simple and at the same time safe, for always at the end of a few months, the premiums being paid, the mutual insurance society is able to repay the loan. The only precaution necessary for a credit bank to take in such a case is not to lend a sum superior to the premiums to be paid during the year. 3. Agricultural cooperative societies. — The joint action of the credit banks with the operations of agricultural cooperative socie- ties constitutes the third and most ticklish part of collective credit. TMb- concurrence may take place in two hypo^theses. Some times it will consist in the credit bank procuring advances on reasonably short terms for a cooperative society, so that a cash fund may be created ; or the bank discounts the society's biUs drawn on their clients. Then again its object will be to grant loans at a long maturity in view of building operations, the purchase of stores, or the fitting up of machinery. This second category of loans requires nearly always a long time and deals with large sums. What renders credit operations in one or the other hypothesis particularly delicate is that they are closed with institutions subject to somewhat heavy commercial risks, and in competition 20 AGBICULTTJEAL OEEDIT, with similar capitalist enterprises that do not hesitate to try to destroy them. We have known something of this in my district of rile de France, where loans were granted to several cooperative creameries — one of them, which had not sufficient funds, was obliged to sell out, beaten by the united wholesale milk people. Thanks to the precautions taken, the district credit bank of I'lle de France and the local credit bank interested were the only creditors that were repaid their loan in full without losing a farthing. But it remains none the less true that this venture proved the risk of such collective credit, showed the necessity of infinite prudence in this respect, and the advantage of strong guaranties. It even made some people think that as much as possible the mingling by the same society of risky credit to agricultural associations with those of ordinary agricultural credit should be avoided. Germany gives an instructive lesson n this head. As a general rule, credit operations with cooperative societies for the sale, pro- duction, or transformation of agricultural products are confined by them to special credit banks of the primary category, so as not to compromise the prosperity of ordinary credit by the commercial risks inherent to the operations of agricultural cooperative societies. It is only in districts where there are no such special banks that the ordinary credit banks agree to grant this sort of commercial agri- cultural credit, and even then they do it with the greatest reserve. In France I think this distinction between ordinary credit and collective credit to cooperative societies has only been apphed in the Basses Pyrenees, where several mill bakeries were successfully organized with a special credit bank. The law of December 29, 1906, on advances on long terms to agricultural cooperative societies, due to the generous initiative of M. Kuau,j minister of agriculture, did not see fit to foUow the path traced by the German and Pyreneean experiences. The operations of collective credit on long terms are intrusted to the district credit banks, even doing away in such instances with the necessity of an intermediate local bank. In spite of our sympathy with the idea from which this law sprang, we, as far as we are concerned, prefer the German and Pyreneean principle of speciahziag. But we must add that nothing in the provisions of the law seems to prevent either the optional intervention of special local banks, guarantee- ing operations on long terms, or the reaUzation of these operations by special district credit banks.* Whatever, moreover, may be the application of the law of 1906, it none the less confirms and proclaims the utility of collective agricultural credit. I The essay, of M. Eieul Paisant on "La loi Ruau sur les avanoes k long terme aux ooopfiratives agriooles," in tlie Bulletin du CrSdit populaire, year 1907, p. 102. AGRICULTURAL CREDIT. 21 III. GuiDiTjTG Principles of the Organization ^ and Working System OF Agricultural Credit. LEGAL dispositions. Local agricultural credit banks may be placed either under the rule of common law, that is, according to the prescriptions of the commercial code and of the law of July 14, 1867 (Title III), modified by the law of August 1, 1893, or else under the special privilege established by the laws of November 5, 1894, and of January 14, 1908. Each of these systems has its advantages. The common law allows societies of agricultural credit to be formed between all those persons wishing to associate themselves without exacting that they should previously be members of this or that agricultural association, or even that they should all be agriculturists— the agricultural character of the society hes in such instances less in the cfuality of the persons composing it than in the object it pursues and in the nature of its operations. This legal rule has the advantage of permitting associates to be recruited from various social classes, thus encouraging the bringing together of different classes in rural circles, but on the other hand it enjoins rather complicated formalities for its constitution and somewhat heavy expense. From this double point of view the special law of November 5, 1894, is more advantageous, as we will presently demonstrate. But in return it limits to a greater extent the choice of associates in the sense that only the agricultural syndicates and the members of those syndicates (article 1 of the law of 1894) and since the law of January 14, 1908, the agricultural mutual insurance societies, gov- erned by the law of July 4, 1900, and the members of those societies can belong to the society of agricultural credit. The idea of the legislator in making these conditions was to place the agricultural credit bank on a clearly agricultural and professional basis and also to admit of their recruiting members from existing societies already accustomed to the practice of association. This latter consideration, which is not without weight, when it concerns credit banks grounded on mutual insurance societies (law of January 14, 1908), was also to the point ia 1894, when the first syndicated agricultural credit banks were about to be instituted in connection with the agricultural syndicates; but since then it has lost part of its utility, m so far as the credit banks of the syndicate catagory are concerned. In many instances in fact, the syndicate, upon which the credit bank must be grafted, is instituted at the sanae time as the latter for form's sake and simply to obey the law, therefore not bringing to it any vital preexisting element. We think we may conclude, from this statement, that if the condi- tions imposed by the law of November 5, 1894, for the constitution of agricultural credit banks, is justified historically by the diffusion of agricultural syndicates at that time, it is to-day frequently only 1 We will occupy ourselves in this last part ot our work only with ordinary agricultural credit on short terms . Conceming the working of collective agricultural credit on long terms in favor of agricultural coop- erative societies, we refer the reader to the special law of Dec. 29, 1906, and to the very detailed decrees of May 30, 1907, and Aug. 26, 1907, that insure their fulfllhnent. 22 AGEICULTUBAL CREDIT. an artificial requirement, destined, without doubt, to be done away with in the future. Already the law of January 14, 1908, has extended the range of agricultural credit. The day that France, following the example of certain foreign countries, will have an organic coop- erative law, the restrictions unposed by the law of 1894 and 1898 m constituting it, wUl no longer have reason to exist. The institution of an agricultural credit bank, grafted on a pre- existing agricultural syndicate, is a peculiarity of the French legisla^- tion of November 5, 1894, but agricultural credit banks can per- fectly well be founded, quite independently of any syndical basis, that is to say among cooperators unconnected with an agricultural syndi- cate. This latter system is practiced in Italy and Gerrnany, and even in France, where certain credit banks, instead of placing themselves under the special control of the law of 1894, preferred to institute their credit bank according to the common law for cooperative socie- ties, that is to say, in compliance with the rules of the conunercial code and of the law of July 24, 1867. On the other hand, there are in Germany quite a large number of rural credit banks that are at the same tune credit societies and agricultural syndicates; these two organizations are thus united in the same institution. FUNDAMENTAL PRINCIPLES. As the loans of cooperative credit societies must be granted prin- cipally according to the general standing of the borrower, it. is essen- tial that the agricultural credit bank should carefuUy recruit its mem- bers, and be in a position to know, as exactly as possible, the status of its customers. This would be all the more easy if the founders were few in number and its circumscription somewhat confined. Promoters of credit banks occasionally take pride in starting their institutions with a 'certain show, endeavoring to found them with an imposing number of associates. This is not always a sound policy. To admit too many members at first may open the doors to doubtful, even dangerous, elements, which may some day have to be eliminated. We think it preferable, on the contrary, to begin with a restricted and carefully selected membership, for instance 15 or 20 convinced founders of good standing m the neighborhood. These would certainly only wish to recruit associates worthy of belonging to the credit bank, which carefully organized in this wayj among persons well known for their honesty and respectability, would thus rapidly acquire the sympathy and confidence of the public. Moreover, in selecting a not too extensive district, promoters would find it less difficult to recruit the staff members and borrowing customers, for within a limited range the personal worth of people can be more easUv ascertained, and the risk of making mistakes is, by this means, red.uced to a minimum. It is therefore recommended to confine oneseK to one or two neighboring parishes. It is also useful to found cantonal ^ credit banks, on condition that the market, which is held periodically at the chief town, make it a business center for the district, thus putting the agriculturists in communication with each other and enabling them to become mutually acquainted. If these conditions are not forthcoming, the 1 In France the department is divided into arrondissements, these into cantons, and the canton into oommunes. (Translator's note.) AGBICULTTrEAL CKEDIT.s 23 foundation must not be undertaken, otherwise the cantonal credit bank, as we have frequently seen, would only work in the parish (commune) where it is quartered and a few adjoining parishes^ pre- venting, at the same time, by reason of its being, the organization of other banks in other parts of the canton — the cantonal credit bank, in this case, centralizmg rural credit and thus hindering its diffusion in all the parishes (communes) of the district. As for district credit banks (of the arrondissement or department) their range is mani- festly too extensive for the moral standing of the members and bor- rowers to be easily ascertained and followed up, and societies so large are uncommon, but those that were founded under such circumstances were backed mostly by old syndicates of the arrondissement or department, solidly established, which in a great measure palliated the inconvenience to which we allude. The choice of the system to be adopted in organizing the rural credit banks, that is to say the extent of the personal liability of the members, is a matter of paramount importance, which must be deter- mined by promoters. We shall see presently that besides its associated capital, the credit society puts to work capital accrued from the rediscount of bills receivable, from loans properly so called, and deposits received. This "outside capital" will be furnished all the more readily, as the confidence of holders, financial establishments and private iadi- viduals, will be won, and this confidence the bank will inspire, not only because it is known to be well governed, or because its reserve fund is large; but even more owing to the guarantee prescribed by the by-laws. In this respect the credit bank, founded upon the principle of a limited responsibility, affords, by its by-laws, the least guarantee, as this is confined to tne associated capital subscribed and the reserve fund. Certain societies, to increase the standing guaranteed by the by-laws, have adopted the system of what is called, divided respon- sibility ("la riesponsabilit^mixte"), that is to say the members agree with or without mutual responsibility, according to circumstances, to be held responsible, over and above the payment of their subscrip- tion, to the amount of a certain number of times the total, either of the entire capital subscribed, or that of their own shares. But without doubt, the credit bank best calculated to inspire con- fidence to third parties, is that which adopts the system of unlimited mutual responsibility fla responsabUitS solidaire itlimitee), by which each member agrees to be held liable on all his property, for all the debts of the society with third parties, provided this debt should be distributed at so much per cent equally among them. It is evident that such a society can easily find all the capital it may need, for who would refuse to lend a few thousand francs to a society which, through the fortunes of its members, offers a guarantee of several hundred thousand ? „. But the system of unlimited mutual responsibility often alarms. This is, however, without reason, for when one looks closely into the matter, one finds that each year the society carefully limits its risks, determining at the annual assembly not only the ma xim u m of personal loans (whicii are always granted on personal security or some other guaranty), but also the maximum of liability the credit bank may 24 AGBIOULTtrBAL CREDIT. incur in the way of deposits and loans. Each agriculturist, therefore, knows the minunum and maximum of the amount for which he will eventually be responsible, and he knows also that should a loss be sustained within this limit he would only, after all, be liable for his equal share with his coassociates. Supposing even he sustained a loss, for nearly always the guarantee of the security prevents the liability from fallmg on the members. WORKING PRINCIPLES. The object of rural credit banks is to grant loans in the interest of agriculture. But with what funds will they work? Their worldng capital is derived from various sources. First, from the associated capital derived from the subscription of shares, of which each otie does not usually exceed 100 francs. Secondly, from loans contracted, either in the shape of advances, properly so called, or the rediscount of bills receivable at the district credit banks, the Bank of France, or other financial establishments, of loans which arti- cle 10 of the law of July 20, 1895, allows the ordinary savings banks to make them; and, finally, of deposits on sight and on terms made with them by the members as well as outsiders not belonging to the credit society nor to agriculture. We will not repeat here what we said in the beginning of our work on the fruitful utility of piling up deposits in rural credit banks, but we will at least recall that they are their main productive source. The loans may be granted not only to the members of the credit society, but also to the members of the syndicate not holding shares. The law of November 5, 1894, does not in fact require that the credit societies should be exclusively mutual; it is sufl&cient they should be afiiliated with the s3Tidicate to do business with the latter or its mem- bers. The same broad principle is evidently also applicable to the credit banks grafted on agricultural mutual insurance societies, in reference to these societies and their members, for the law of January 14, 1908, places them on the same footing as the syndicate credit banks. But, of course, it would be different if the by-laws of the credit bank should have attributed to it an exclusively mutual character. Though a partisan of banks based on mutuality, we think, however, it is well not to be too peremptory in this respect. In certain districts rural credit took root precisely because the borrowers were not neces- sarily obliged to be members of the credit bank. They became so, little by little, by making use of it, and even more willingly than if they had been forced at the beginning to join the society. In the matter of rural credit pliability and tact are never superfluous. However, as these nonassociate borrowers bring risks to the credit banks, without incurring any themselves, it is only fair to make less advantageous terms with them than with the members themselves; for instance, in exacting security from them, however small the loan, or in charging a higher rate of interest than to the members borrow- ing. We know a certain number of banks that lend at 4 per cent, the usual rate of rural cooperative credit, to their own members, and 5 per cent or more to the members of the syndicate alone.' This differ- 1 These rates may, however, be reduced at the end of the financial year by applying the cooperative prin- ciple of a premium to borrowers. AGKICULTUBAL CEEDIT. 25 ence is an invitation to nonassociates to subscribe at least one share , so as to benefit by the lower rate of interest, and to our knowledge it has often been so understood and accepted. The greatest prudence must naturally goYern credit operations. The rural credit bank must only lend to those agriculturists whose standing is of the highest and who would be sure to meet their lia- bilities. It would be well also that among the borrowers there should be large landed proprietors, as well as the owners of medium-sized and small properties; this mingling can give nothing but good results from a social standpoint, and experience proves, moreover, that socie- ties which grant only small loans realize only small profits, and have some difficulty in concentrating a reserve fund of any importance. Guarantees, such as the warranty (warrantage) of agricultural prod- uce, the pledge of bonds, and, above all, good personal security, should guard the credit bank from possible mistakes as to the solvency of its clients. Security is, in some sort, the touchstone of the status of the borrower, for if he can find no one to go his security he is probably not worthy to have money lent to him. On the other hand, neither must a rural credit bank limit its action only to the handing out of money. It must look to the use to which it wUl be put, and examine whether the move is likely to be a profitable one for the borrower, or if it is beyond his means. In other words, the rural credit bank must, in this order of circumstances, be not only a banker but a counselor. The loans, on which interest is paid in advance, are represented by notes to the order of the lending bank, payable at three or six months, on banking days ; this enables the credit bank to increase its resources, if necessary, tenfold by rediscounting. Though his debt falls due on a given date, the borrower may nevertheless free Ipmself by paying on account in advance. Should he so wish to do, the rural credit bank will only have to open a deposit account with him, which reaps the benefit of the same rate of interest on deposits as that paid on the loans; the borrower will deposit the sums to be paid on account until the entire amount of the note due is paid off. The loan once granted, the rural credit bank must see that it is not applied to other uses than those for wliich it was borrowed. In this respect, therefore, the best plan, when the loan is destined, for instance, to the purchase of fertilizers, is to pay the purveyor directly, instead of handing over the funds to the borrower. The bank must also be strict as to payments when they fall due, and should not allow notes to be renewed too easily nor too frequently, and even then usually only after a part of the debt is canceled. As to the interior organization of the rural credit banks, it should be as simple as possible, and may be summed up in the following three rules — prudence in lending, supervision ever on the alert, bookkeeping always posted up and frequently inspected. The credit bank is governed by a board of managers^ assisted by a secretary-treasurer. The positions are gratuitous; the treasurer, who may be chosen without belonging to the bank or syndicate, alone may receive a smaQ consideration for his trouble. The board should meet quite frequently and at stated periods, as often as possible on market days. The managers look into the requests for loans, see to, those that :are outstanding, attend to those which have matured. 26 AGEICULTTJBAI, CREDIT. examine the administration of the treasurer, draw up the reports, both monthly and annual, as well as the yearly schedule, etc. Certain local credit banks find it convenient to leave their accounts to the care of the district credit bank with which they are affiliated. We consider this practice defective. The local banks, which are self- foverning, should carry their sense of responsibility to the extent of eeping their own accoimts. It is, moreover, impossible that their administration should be really serious and comprehend its duties if they do not know for themselves how they stand as far as their receipts are concerned, their expenses, their credit, and their debts, their profits and their losses, their general expenses, and their reserve funds. Finally, a supervisory committee superintends the management of the board, the administration of the treasurer, and sees that the statutes and internal rules are properly carried out. It meets sev- eral times a year, perhaps each quarter, and presents a report at the annual meeting, which discusses and approves the accounts of the year and decides questions left to its jurisdiction by the by-laws. CONNECTION EXISTING BETWEEN THE LOCAL EURAL CKEDIT BANKS AND THE DISTRICT BANKS. The district rural credit banks organized by the law of March 31, 1899, like the local banks just described, are founded according to the law of November 5, 1894, on the same principles and with the same formalities, by means of shares subscribed by the rural syndi- cates, members of the same, agricultural insurance societies and their members, by local rural credit banks and their members. They can receive from the Government — advised by a special board appointed for the minister of agriculture — gratuitous advances amounting at the most to four times their capital paid in (law of December 25, 1900). This advance is granted for five years, but can be renewed. The active work of the district credit banks consists in making advances to the local societies afl&liated with them for their cash fund, advances equaling the amount of capital subscribed by these local banks, by means of their district bank shares taken by the former (decree of April 11, 1905), and in rediscounting. notes drawn by members of the local banks and indorsed by these banks. Their passive work, like that of the local banks, consists in receiv- ing deposits at sight and for future payment, in borrowing, in redis- counting their own bills receivable at the Bank of France or some great financial establishments. The district banks must energetically resist the temptation of Granting too low a rate of credit to their local banks, which they may e inclined to do on account of the gratuitous advance made by the state. The proper principle in this matter is that they should lend or rediscount at a rate at least equal to the rate of discount of the Bank of France, otherwise they are exposed to loss in CEise they* should have to rediscount their own bills receivable did they lend at a rate inferior to that which they pay the Bank of France. More- over, they would render, by such a practice, the worst possible service to the local banks, and consequently to the agriculturists themselves, AGKICULTTJEAX, CEEDIT. 27 by accustoming them to find credit at a rate lower than the market rate while these gratuitous advances are being made by the state — • an abnormal rate which they could not maintam the day this advance ceases.^ On the contrary, the district banks should rather look upon this gratuitous advance by the state as a means of rapidly constitutiag large reserve funds, thanks to the profit reahzed by its gratuity. With this object in view they would even do well to set aside from their annual profits an amount representing the interest (at 1 or 1^ Eer cent, for instance) they would nave paid the state, if this advance ad not been gratuitous, and to pay this installment into a special reserve fund called "guaranty fund" (fonds compensateur) . By this measure they "^11 prepare for the future a working capital proper in addition to their associated capital. This ingenious combination, suggested by M. Rayneri, vice president of the centre fM^ratif, is practiced with success by a certain number of district banks. Let us add, ia finishtag, that the subsidized district banks, being responsible to the state for these advances, are under the supervision of its inspectors, and that they themselves must carefully superintend their local banks; but this latter inspection may be left to the care of district associations, where they exist, as is the case, for instance,, in the Alpes Mari times and I'lle de France. We will not enlarge further on the organization and working of agricultural credit. We think we have said enough to enhghten those wishing to take up the matter and to guide them toward the essential principles which have already been experimented. We did not, it is true, go into certain practical working details, but we could not expect to explain everything in these few pages. For all we have not said we beg the promoters of credit banks to refer to the guides and manuals published on the question, particularly to those very complete publications of our colleague, M. Rayneri; moreover, we wUl consider it our duty to give information and post all men of action and good will who apply to us. 1 See, for further particulars on this important question, our report to the National Congress of Agricul- tural Syndicates, held at Angers in 1907. (Bulletin du Orfidit populaire, 1907, p. 318.) GAYLAAAOUNT PAMPHLET BINDER Manufactured by GAYLORD BROS. Inc. Syracun, N.Y. Stockton, Calif.