t \js^ » v>|€:^. j^ H J* CORNELL UNIVERSITY LIBRARY BUSINESS 62d CoNaREss\ Sd Session J SENATE f Document l No. 966 i( The Way Out of the Rut''] EUROPEAN COOPERATIVE RURAL CREDIT 1^.^/ SYSTEMS CORRESPONDENCE AND COMMENTS ON THE ^^^^ EUROPEAN COOPERATIVE CREDIT SYSTEMS THEIR ADAPTATION TO THE NEEDS OF THE ^t*^ AMERICAN FARMER International Institute of Agriculture Cornell University Ubrary HG 2041.163 The way out of the rut, " European coope 3 1924 019 223 456 PRESENTED BY MR. FLETCHER Decembbr S, 1912. — Ordered to be printed WASHINGTON GOVERNMENT PRINTING OFFICE jL^tJ XG5 INTERNATIONAL INSTITUTE OF AGRICULTURE. THE WAY OUT OF THE RUT. AMERICAN COMMITTEE TO START FOR EUROPE, APRIL, 19] 3. COBKESrONDENCE AND COMMENTS ON THE EUROPEAN CO-OPERATIVE RURAL CBEDIl SYSTEMS THEIR ADAPTATION TO THE NEEDS OP THE AMERICAN FARMER. JOINT RESOLUTION PASSED IN THE SENATE OP THE UNITED STATES. Whereas the Department of State of the United States detailed, upon the application of the Southern Commercial Congress, David Lubln, American delegate to the International Institute of Agriculture, Rome, Italy, to direct a conference on agricultural finance held under the auspices of the Southern Commercial Congress in Nashville, Tenn., April 1 to 6 ; and Whereas 27 States were represented through delegates in the conference; and Whereas resolutions were unanimously adopted providing for an American commission to go abroad for the investigation of rural credits in Europe; and Whereas the Southern Commercial Congress will send the commission abroad, composed of delegates from all States of the United States, to report to the International Institute of Agriculture (which, under treaty. Is supported by the Government of the United States) at the time of the meeting of the general assembly of the International Institute of Agriculture, May, 1913 : Therefore be it Resolved, That the Congress of the United States, in recognition of the valu- able service to be rendered the United States in the investigation of the Euro- pean systems of agricultural finance, hereby indorses the proposed American commission and Invokes for it the diplomatic consideration of the countries to be Included in the itinerary. We recommend and urge an authoritative investigation of agricultural credit societies and corporations in other countries, and the passage of state and federal laws for the establishment and capable supervision of organizations having for their purpose the loaning of funds to farmers. — Platform, Republican Party. Of equal Importance with the question of currency reform is the question of rural credits or agricultural finance. Therefore we recommend that an investi- gation of agricultural credit societies in foreign countries be made, so that it may be ascertained whether a system of rural credits may be devised suitable to conditions in the United States. — Platform, Democratic Party. A similar plank has been adopted in the platform of the Progressive Party. As a result of the keen interest awakened in the United States in the Co-operative Eural Credit systems, I am receiving many letters on the subject. As time does not permit of detailed replies to each of them, I herewith present this document to serve that purpose. Davhi Lubin, Delegate of the United States, International Institute of Agriculture, Rome, Italy, Octoher, 1912. 4 BUEOPBAN COOPEKAIIVE BUBAL CBEDIT SYSTEM. RURAL CO-OPERATION A REMEDY FOR THE TRUST. [L/etter to Congressman William Sulzer from the American delegate to the International Institute of Agriculture.] I have received your valued letter, enclosing copy of the resolu- tion you introduced into the House of Representatives (H. R. 21479, Sixty-second Congress, second session) for a conference to promote an enquiry into the high cost of living. You say : ".Look it over and write me your opinion about it." I have read the document carefulty, and believe that the proposed enquiry would no doubt bring forth important facts, conducive to the proper understanding, and, consequently, to the ultimate solution of the problem. Does it not seem to you that the high cost of living is mainly due to the trusts, to the trusts in agricultural products ? I think so ; and so believing I am impelled to reply to your enquiry along this line. /' You and I have read in the papers, have heard at home, have heard abroad, have heard early and often, in season and out of season, every time, everywhere, that the trusts, " those arch monopolists," are " de- vouring the people," " eating up their substance," " fixing prices to suit themselves." Now, this is true or it is not true. If it be not true we must look to other causes for the high cost of living ; but, if it be true, it is evident that we have the cause before us, it is the trust; and the enquiry may then properly be changed into : " How may the effects of the trust be neutralised ? " WHAT IS A TRUST? But, before proceeding further, the question presents itself : What is a trust? What is its cause? What is its function? What is its effect? The trust, as it seems to me, is an outgrowth of commercial pro- cedure, evolved by the trend of twentieth century progress. It has been found that distribution can be effected to greater economic ad- vantage through the employment of combined capital and combined .skill in management. It is a form of co-operation. It is found to be cheaper to collect, handle and distribute, say, 10,000 pounds of butt«r undier one fund and under one management, than it would be to have this done by various heterogeneous agencies dealing, say, with 50 pounds each. If this be true it must follow that trusts are an economic advantage, that they are beneficent institutions. How, then comes it that there is almost universal and pronounced disapproval of them ? It is because its mode of procedure enables the trust to follow most efficiently the lines of least resistance. This enhances its returns to an extent which enables it at the start to confer benefits on both seller and buyer, benefits which it uses as a subsidy for its up-build- ing. So, it may begin by increasing the returns to the producer by 3 per cent and reducing the cost to the consumer by a per cent. By ihis means the trust tends to eliminate competitive factors and presently finds itself in a position to assume, in a greater or a Cesser degree, the functions of a monopoly. It then finds itself in a position to exert its power effectively towards gradually lowering the price it EUROPEAN COOPEBATIVE RTJBAL OKBDIT SYSTEM. 5 pays the producer and raising the price it charges the consutner, and, in accordance with the laws of commerce, it employs this power to conserve and promote its interests. In the course of time the trust begins to give rise to antagonisms, antagonism on the part of the producer, due to the lower prices he is compelled to accept, and antagonism on the part of the consumer due to the higher prices he is compelled to pay. These antagonisms lead to conflict, and from time to time efforts are made by the producers, or the consumers, or by both, to overcome the evils resulting from this system. The trusts, fearing to lose ground, then strengthen their position by " merging," by combining with other trusts ; and this gives them the strength which enables them to resist all attacks, whether they be in the press, in the courts of law, or in the halls of legislation. Thus the system of the trust tends to perpetuate itself and to grow progressively, consuming unjustly not only the legitimate earnings of the people, but taking from them liberty in its most practical form. For while the flag of a nation is a symbol of liberty in its ideal form, the dollar in the man's pocket is an evidence of liberty in its practical form. The dollar entitles its owner to a certain measure of merchandise or of leisure. Whoever unjustly deprives the owner of part of this dollar deprives him of part of his rights, of part of his liberty. We thus see that the persistence of the trust system, and its progressive growth, tends to deprive the people of their rights and to the destruction of liberty. WILL THEY PULL TOGETHER? But is there not a remedy ? Are not the farmers the many and the trusts the few ? If the trust may exert power through the means of accumulated dollar.H, may not the farmers exert the power which their great numbers give them? Have not the farmers influence in shaping, moulding, enacting and repealing legislation? Can they not, through co-operative action, perform the functions of the trust and thus set it effectively aside? The American farmers certainly could do this were they to go about it the right way, were they to pull together. And this reminds me of a story. In the early days of teaming in Arizona I once accompanied a " prairie schooner," run by 16 mules, on its morning journey across the desert. At certain intervals the driver halted for a short rest. The mules travelled along at an even gait, and all was well so long as they were proceeding on, but the trouble arose in restarting. When the word of command was given the leaders would start forward and the wheelers pull back ; at the next attempt, the wheelers would rush forward and the leaders remain stationery, whilst the other mules, in sympathy with one or other of the groups, neutralised the efforts of the teamster, until, by some lucky chance, the disorganized efforts terminated in a harmonious " pull together," when the " prairie schooner " would again start on its way. " These fool mules will soon be done for," said the driver, waving his hand towards the animals, "unless we can get them to pull together." And so with the fanners. Agitations for the suppression of the trusts or for the curtailment of their power crop up at intervals; but the means employed towards that end are ineffectual because 6 EUEOPEAN OOOPEBATIVE KUEAL CREDIT SYSTEM. inadequate, and they are inadequate even when the means proposed promise to be effective because the farmers fail to act in unison, hence, m reality, their power of numbers is of no avail. And the reason for this becomes obvious as soon as we marshal the facts before us which make up the motive that aims, on the one hand, at the conservation, and, on the other, at the abolition of the trust. Let us see whether we cannot show this in the form of an illustra- tion. AV tLLUSTRATION : ONE CENT VERSUS $2,000. Let us take the case of a trust buying its goods from, say, 50,000 farmers and selling the same to 50,000 consumers. Now suppose that this trust, having driven away competition by a period of over- paying and underselling, afterwards finds itself, when purchasing, m a position to levy a toll equal to one cent a day from each of the 50,000 farmers, this would be $500 a day. Then, when selling, it also levies a toll of one cent a day from each of the 50,000 consumers; this would be another $500 a day. The $500 a day from the farmers and $500 a day from the consumers would be $1,000 a day gain to the trust. Now, in addition to this, we have already said that the trust is enabled to earn a per cent (let us say 1 per cent) on its business by reason of its economic mode of procedure, apart from the tolls it levies on producers and consumers. This extra 1 per cent would again be, say, $500 on buying and $500 on selling, or an additional $1,000 a day. Thus we have a total for the trust of $2,000 a day extra profit due to its special mode of operation. The case would then stand as follows : 1 cent loss a day to the individual farmer, 1 cent loss a day to the individual consumer; and $2,000 gain a day to the trust. The motive actuating the. farmer or the consumer in an endeavor to do away with the trust would be the loss of the 1 cent a day; whereas the trust, in its efforts to maintain its status quo, is actuated by its desire to continue its extra daily income of the $2,000. Thus the ratio of the motive on the one hand, as compared to that on the other, is as one cent to two thousand dollars. Need we be surprised that the seeming smallness of the loss to the individual farmer and consumer so dulls their incentive to action as to preclude united effort for the remedy? But, on the other hand, the incentive which actuates the trust to fight for the maintenance and progress of its system is so pronounced, and the means subject to its control so ample, as to confer on it that degree of strength which enables it to persist and to render itself substantially invinci- ble. Thus the position of the trust seemingly rests on a solid founda- tion. At the same time it is clearly evident that if the trust continues to pursue progressively the course indicated, it must end in the enslave- ment of the people. One trust firmly planted and growing gives rise to the upspnnging of other trusts, and almost imperceptibly the trust begins to apply the cinch; tight, tighter, tightest. Until at last we have the reductio ad absurdum of the trust system. The one cent loss swells to 5 cents, then to 10 cents, then to 25 cents, then to 50 cents, then to revolution, then to hell. It may take time ; it may EUB0PEA2Sr COOPERATIVE BUBAL OBEDIT SYSTEM. 7 take much time ; but the trust must inevitably bring about economic slavery for all the people, and economic slavery must, in the long run, ^ve rise to political slavery. THE LESSON OF OLD ROME. If this conclusion is justified it brings us face to face with a most faingular situation, a situation which no patriotic American can afford to Ignore, for it means more than a mere temporary question of higher cost of living ; more than a mere passing incident in economic history. What does it mean? It means that there is a cause at work which, if not neutralised, if allowed to persist and to accentuate itself, must ultimately obliterate popular government and destroy the American Eepublic, entailing a process of ruthless uprooting almost unparalleled in the annals oi history. It means that the American farmer and the American consumer are being continuously bled by an omnipresent leech, the trust; and this trust is but another name for a system similar, in our day, to that which brought about the destruction of old Eome. Let us hear what the eminent German writer, Kalthoff, has to say on this matter in his work " The Eise of Christianity." Speaking of the exploitation of the farmer in ancient Eome, he says : The noble Roman becomes a relentless exploiter of the poor peasant. He Is a speculator on a grand scale and menaces the State. . . . There Is no political and social, and certainly no religious or ethical resistance to the evils of this great concentration of capital. The capitalistic accumulation on an agrarian basis has the whole power of the State at its disposal at Kome — the army, the fleet, the law and the government. ... So the great serpent that is to strangle the finest strength of Rome, its peasantry, brings it coils closer and closer together. And let us ask what was the end of it all. Listen a moment to what Tiberius Gracchus said : The wild beast has its cavern and its den; every one of them has its place of refuge. But those who are called the lords of the earth have nothing left but light and sunshine. There is not a stone that they can call their own and lay their weary heads to rest on. "And," resumes the author, " every effort to reform the situation in the Eoman world completely failed." Failed, because by killing off the independent, land-owning farmer of old Eome this cause undermined and ultimately destroyed the foundation of popular government. For, be it remembered, the State may be compared to a tripod of which one of the supports is labor, another commerce, and the third agriculture. The first two are mainly urban, and form the progressive and radical elements, at con- stant strife with one another, and at strife with the third, the farmers of the nation, the conservative element. For, just as, in a boiter and engine, the governor controls the sujjply of steam, so, in the State, the rural, conservative element holds in check the progressive urban, and thus conserves the State. It thus followed that when old Eomie had killed her conservatives, her independent farmers, by driving tiiem off the land and replacing them by renters, she killed the very element necessary to her existence. 8 EUROPEAN COOPEEATIVE EUEAL CEEDIT SYSTEM. But, it may be said, surely old Kome offers no criterion ; for what comparison can be made between the farmer of old Kome and the automobile-owning, well-to-do American farmer? Nevertheless, Eome certainly does offer a criterion, for does not his- tory repeat itself? The trusts have not yet had time enough to bring to a culmination the evils their continued operation must ultimately produce ; but we can all see that they were more efficient twenty years ago than they were fifty years ago, and still more efficient ten years ago than twenty years ago; and are they not more efficient to-day than ten years ago? Ana may we not expect them to be yet more efficient as time goes along? THE STRENGTH OF THE NATION. What then; is not efficiency a merit? No, not in this case; on the contrary. It is idle to talk of Monroe Doctrines, of navies, of fortifi- cations, and of other devices for strengthening the nation so long as the trusts crawl up on the efficiency platform. Just let the trusts get the death grip in earnest on the American farmer; that death grip which they will surely obtain if not effectively prevented, and then all props for strengthening the nation will prove but broken reeds to lean upon. THE BEMEDY. And now it is in order for us to see whether a way cannot be found that will neutralise and remove the trusts. I believe there is a way ; a way indicated by the following: Let a means be devised whereby groups of American farmers may, under corporate power, collectively obtain a sufficiency of credit to enable them to act as distributors as well as producers. This, if effectively done, would neutralise and remove the trusts. Now, to be his own distributor, the producer must be able to pro- cure money, as the trust does, on the basis of what is known as a "commercial account," paying interest only on the amount drawn, and for the time it is used. The collective and dynamic use of this money renders it possible for the trust to be a trust ; gives it its power to obtain the product and to manipulate the price. By conferring the use of this dynamic money on the farmers' co-operative groups we neutralise the trust, we do away with it. Now, the question is whether this could not be done by a combina- tion of the producers, the farmers, through co-operation? Could not this be done by the adaptation of some such financial system for the producer as we find in operation in the European countries ? From the evidence before us it seems to me that it could. We see that, under the Landschaf ten system of co-operative land-credit bonds, the German farmer obtains credit for " one half the estimated value " of his land.^ Now, the United States Census gives the American farm valuation at forty billion dollars. So, according to the German standard, the American farmers' co-operative groups could obtain credit to the enormous sum of twenty billion dollars, which is, of course, much more than double or treble the amount they would ever > See "An Outline of the European Co-operative Credit Systems," page 34. International Institute of Agriculture. EUROPEAN COOPERATIVE RURAL CREDIT SYSTEM. 9 require. And if the security they can offer were rendered by national law as valid in the United States as it is under the European co- operative credit systems, it would enable the American farmer to have the free use of all the credit he can possibly require at the lowest rate of interest in the world, and all this would for ever cut the claws of the deadly trust. HOW THE MONEY CAN BE OBTAINED. The interest on a United States bond is 2 per cent. The United States postal banks readily obtain deposits at 2 per cent. The United States can obtain money at this low rate of interest because the se- curity it offers is unquestionied. It is the character of the security which determines the rate of interest. The $40,000,000,000 assets of the American farmer are more than sufficient security for all the credit he may require at 2 per cent interest per annum, provided that the instrument for obtaining this credit be placed, as under the European systems, in a form which would render it an unquestioned security and as liquid as the bonds of the United States government ; liquid not merely in a certain county or a certain state, but liquid throughout the United States.' But, it may be asked, assuming all this to be true, and assuming that it can be done, would it not merely change the trust masters ; would it not merely exchange the trust composed of manipulators for the trust composed of co-operative groups of farmers ? Well, supposing it did, would there not be this difference : In the first case the trusts consist of limited cliques ; in the second case, they would consist of the producers, the American farmers. In the first case, the law of supply and demand is interfered with, artificially depressing the purchasing price and artificially enhancing the selling price. In the second case, the trust earnings, divided among the many groups of farmers, by increasing their capital would tend to increase the supply of their products, hence to maintain the selling prices at a natural equilibrium, and thus render normally operative the law of supply and demand. The farmer would obtain a higher price for his products, and they would reach the consumer at a lower price ; it would reduce the cost of living. But how comes it that, notwithstanding the absence of the trusts in farm products in Europe high prices prevail there also? WHEN PROTECTION PROTECTS. Well, in the first place there is protection. While the protective tariff on the staples of agriculture is inoperative in the United States because we have a surplus for export, it does operate in those European countries that produce no surplus. Thus, say, wheat is on our tariff schedule at 25 cents a bushel, and we export, say, 200,000,000 bushels out of a 700,000,000 bushel crop. To what extent is the American farmer protected? Clearly to no extent; he is not pro- tected; for a tariff on imports cannot protect the staples of agricul- ture so long as they are exports. In such a case the quantity sold for home use can bring no higher price than that realized on the quantity 10 EUBOPEAN COOPEBATIVE BUBAL CBEDIT SYSTEM. Exported; for the export and home price is the same. It therefore follows that the price in the United States for the entire crop is the price ruling in the central foreign buying market (Liverpool), less the cost for carriage, insurance, profit and interest from place of production to Liverpool, whether for the quantity exported or for the quantity sold for home use. But, if we had no surplus, the 25 cents a bushel protection would then be operative as it is in Europe. The price in the United States would then be, first of all, the ruling price in the world, plus the 25 cents a bushel protection, plus the cost of carriage, insurance, profit and interest from the port of export to the place of consumption. The protected European farmer has all this, and this is one reason for high prices in Europe. So much for the protective tariff. The other reason is that the European farmer, by his co-operative rural credit systems has made it impossible to form trusts in farm products in Europe such as exist in the United States, but has himself become the trust for his own products. THE WORK OF THE SEliECT COMMITTEE. Think it over once, think it over twice, think it over the third time and you will, I believe, conclude with me that the simple question of the high cost of living has its root in two other questions : the ques- tion of monetary reform and the question of the trust; and that these are, at bottom, but one ; the question of the economic status of the American farmer. / Open up to the American farmer the money to which he is entitled from the measure of his assets; let him employ this co-operatively and under the method of commercial accounts, and let him employ part of these funds in co-operatively marketing his products, and you have, first of all, done away with the trust ; second, gone far towards solving the monetary question ; third, the evil and irksome features of the high cost of living will have disappeared ; and this, when done, will render the American Republic stronger than any other country in all the world. It is this, on the one hand, or the progressive growth of the trust on the other. If this country is willing to sell its birth-right for a mess of pottage ; if each citizen is to stand idly by, looking on at the working of a cause which must in its operation devour the liberties of this people, and yet lift no finger to prevent it ; if this is to be the prevailing conduct, then is the outlook gloomy indeed, not merely for the American people but for all the peoples in the world. But you and I know that there is no cause to complain ; the Ameri- can people are waking iip to the danger here pointed out, for there is now every indication that the investigations the Select Committee is to make in Europe iji 1913 will lead to the establishment in the United States of a system of rural co-operative credit. And this will enable the American farmer to free himself from the yoke of the trust; remedy the defects of the present monetary system; and re- lieve the pressure of the high cost of living. BXJEOPBAN COOPEEATIVE BUBAL CEBDIT SYSTEM. 11 Status of the German Rural Co-operative Credit Societies, 1909-10. Rural RaiSeisen. Central EaUIeisen. Sohulze Delltzsche. Landscliaften type. Number of mstitutions. Number of members . . , Total turnover... IS, 168 1,163,186 $1,061,568,167 38 15,436 $1,667,293,580 1,035 645,342 $3,231,801,035 25 Bonds in circulation. $840,981,126' WHY SHOULD THE SELECT COMMITTEE GO TO EUROPE? An important point has been raised by Prof. A. F. Woods, Dean of the University of Minnesota. In a communication of July 30 Prof. Woods says: There is quite a strong feeling here in favor of co-operative credit associa- tions. * * * I believe the idea is fundamental. But the tenor of Prof. Woods' letter seems to indicate that in his opinion it is hardly necessary to send a committee abroad for the pur- pose of studying literature on the subject of co-operative rural credit. That kind of study can be made right at home. As he says : The International Institute of Agriculture has already published all the im- portant facts regarding the co-operative credit systems of Europe. I am entirely in agreement with Prof. Woods ; indeed, it would be more practicable for a committee of learned economists to pursue the study of such documents in the United States than it would be for a large committee of farmers to go abroad for such a purpose. But is this the purpose ? It certainly is not. I feel quite sure that if Prof. Woods had read the conclusion of my Eeport on the Nash- ville Conference (pages 18-19) he would have seen clearly the pur- pose the Select Committee is to serve, and I believe it would have enlisted his approval. For his information and for the information of others who may hold his opinion I, will quote this conclusion. It is as follows: And now as to the mode of procedure to be adopted in obtaining this experi- ence. Three modes are proposed. First, an enquiry in Europe by the Govern- ment through its diplomatic agents ; or, second, an enquiry in Europe through a committee of 3 or 5 members appointed by act of Congress; or, third, an en- quiry, as outlined in the resolution before quoted, adopted at the Nashville Con- ference, for the appointment of a commission consisting of two delegates from each State. As to the first and second modes, it may be said that the Information on facts which the diplomatic agents or the proposed three or five congressional commis- sioners could .collect is already here in the many volumes published by the International Institute of Agriculture. It vrould hardly be possible for a Gov- ernment oflScial to improve on the information which the Institute has already given to the world on this subject. But it is not merely that information, nor any impression upon one individual, or a series of individuals, whether they hold their position officially or unofficially, that can summarize this theme into practical modes of procedure for the American farmer. It is only when the American farmer himself, through the committee of two-\ from each State of the Union, begins to generalise on what he has observed in Europe, when he has mastered the rural co-operative credit systems as they affect the European farmer, and when he adapts them to meet his needs, it is only then that the problem will be on the road to practical solution. « 12 EUBOPEAN COOPERATIVE EXJKAL CEEDIT SYSTEM. Thus it will be seen that the mission of the Select Committee is not merely to go to Europe for the purpose of reading up printed docu- ments. It is for the purpose of observing the working of the Euro- pean co-operative rural credit systems; of speaking to the farmers who are working under them ; of ascertaining their experience. It for the purpose of gaining information on the laws under which these systems operate; of interviewing the government officials who supervise their working ; of visiting the local credit banks and the central banks which handle the financial end of the co-operative busi- ness. The Select Committee is to interview the presidents and direc- tors of the great agricultural associations and the leading economists. All the information thus acquired is to be assimilated, and at stated intervals during the tour the various points are to be brought up for discussion at meetings of sub-committees and of the committee as a whole. The essential points thus brought out will be noted in the minutes of the proceedings, and finally a Report will be drawn up containing the conclusions and recommendations of the Committee, a Report which will be handed to the Congress of the United States with a request that it be made a public document and circulated among the people. The field of observation here mapped out may be gone over with greater profit by the farmer than by the economist. The farmer has the practical experience; the economist has not. But the farmer's experience is limited to his section only, hence the need of having on the Select Committee farmers from every section. But as farmers are proverbially narrow and conservative in their views, it is essen- tial that they be supplemented on the Select Committee by econo- mists, by statesmen, by financiers, and by men familiar with the laws of commerce. Hence the need for " delegates at large." Nor need the work of the Select Committee end with the bringing in of its report. It will then really be but begun. There is no rea- son why the Select Committee cannot constitute, under the Southern Commercial Congress, a permanent national organization, and re- main organized to promote the proper working in the United States of a co-operative rural credit system. And it may be that American genius will not alone be able to assimilate or adapt the European systems, but that it will be able to forge far ahead, and improve on them, thus through progress repaying the European countries for the benefits their lessons will have conferred upon us. WHY FARMERS SHOULD BE ON THE SELECT COM- MITTEE. [Letter to Senator Duncan IT. Fletcher, President of the Souttiem Commercial Congress.] I have your valued letter of August 14 wherein you say : Inclosed herewith are some remarlis which I had occasion to make to-day in the Senate, and I would be glad to have your criticism on them. I have carefully gone over this presentation, as contained in the Congressional Record of August 14, and it seems to me to give a con- cise and conservative outline of the European co-operative credit systems. EUBOPEAN COOPEEATIVE BUBAL CBEDIT SYSTEM. 13 On page 1, second column, of your remarks you give a list of repre- sentatives who have been in Europe this summer, commissioned by the American banking interests to make a preliminary investigation of these systems. I note that at your request, this committee is also to report the results of its investigations to your association prior to the departure of the Select Committee for Europe. While this preliminary committee was in Paris I received an in- vitation to meet it there. Accordingly I was in Paris for the better part of a week in consultation with them, several of the conferences being held at the American Embassy with the participation of the Ambassador, Governor Herrick. The members of this committee had nearly completed their itinerary when we met, and seemed well pleased with the results of their investigations. While they had not yet crystalized their observations into definite plans, there seemed to be a consensus of opinion that the American farmer should be enabled to obtain money at lower rates of interest than those now prevalent, and that a way should be devised towards this end, thus showing that substantial progress is being made in the enquiry before us. WOULD IT COVER THE GROUND'^ The trend of their conclusions seemed to be for the establishment, by bankers, of mortgage credit banks for farmers, with the security in a form which would warrant a lower rate of interest than that now current. While the cheaper money thus proposed would be a gain for the farmer over present conditions, it would not, in my opinion, take in the ground covered by the European co-operative rural credit sys- tems ; it would be much feebler because the bankers' mortgage banks are not intended to deal with co-operative groups of farmers but with farmers individually; and because in so doing there would be no guarantee that the lower rates of interest would be permanent; it would then be a case of the individual farmer versus the banks, and the banks versus the individual farmer. Now, the European systems (which the Select Committee is to in- vestigate with a view to their adaptation to American needs) seem to me far superior to any such plan for the following reasons: First : because they are co-operative ; groups of farmers form their own banks under a method whereby they are continuously enabled to obtain money at an interest rate almost as low as that paid on govern- ment bonds. Second: because the co-operative use of this money enables the farmer to act as distributor of his products, and this prevents the formation of the trust. Third : because this co-operative use of money not only gives the European farmers' groups the profits derived from banking, but like- wise the still greater profits resulting from the economic, co-operative distribution of their products which their co-operative credit systems enable them to do. AH this was brought out in our discussions, but the arguments used apparently failed to convince the bankers. They seemed to maintain that their proposal for mortgage banks would be more practical for the American farmers than co-operative banking. They put forward 14 EUEOPJSAUr COOPEBATIVE EUEAL OBEDIT SYSTEM. the question : " Is the farmer competent to step in and do a co-opera- tive business of the magnitude here contemplated? Have you for- gotten the co-operative attempt made by the Grange in the early seventies ? Did it not end in dismal failure ? No, these attempts are not forgotten ; but the lessons they teach do not apply in the present instance. Nor must we forget that if the efforts of the Grange towards upbuilding co-operation resulted in failure, the movement in the early eighties for mortgage banks, set on foot by bankers, likewise led to disastrous results. And so, if we can trace a failure to the farmers, we can trace a yQt more disastrous failure to the bankers. And no wonder; speaking of those mort- gage banks, Mr. Edward F. Adams, in " Sound Currency " says : " Loans were largely speculative and methods deceptive and some- times fraudulent." These were private banks run by bankers, doing a land-mortgage businsss with individual farmers. Moreover, it should be noted that the failure of the Grange, while partially due to inexperience, was, above all, due to lack of money, to the absence of those commercial open accounts absolutely necessary to carry on the business of distribution, open accounts which co- operative banking would provide. That it would be practical for the American farmers to obtain the Requisite money for such open accounts through co-operation is evi- denced by the fact that it is thus obtained by the farmers in Europe. It is only a question of setting about it in the right way ; in the way in which it was done in Germany, where these systems arose, where they have been in operation for many years, and where they are in practical operation to-day. But right here it should be borne in mind that these systems were not founded solely by inexperienced farmers ; they were founded with the help of men singularly gifted, and were placed by national laws under the protection and supervision of the national Government. This, in outline, was my contention at the conferences held at the Embassy. THE OPINION or GOVEKNOK HEKRICK. Governor Herrick listened attentively to both sides of the presenta- tion. On being asked for his own opinion he said he preferred to defer it for his Report on the subject to the Administration, which he was about to draw up ; nevertheless, he unhesitating expressed him- self strongly in favor of the proposed investigation by the Select Committee m the European countries. In this connection he says in a letter of August 22: The purpose of all interested is, or should be, to bring to the American people information on all the methods employed in Europe which have proven of value to agricultural Interests. It would be a very good idea if we could centre all this work In one organization such as the Southern Commercial Congress. The Governor was quite emphatic in his disapproval of any pre- mature action. In a communication of September 11th, he says: I think it would be most unfortunate If after the public has beeen awakened to an interest in this matter, lll-';onsldered organisations should succeed in getting into the field and bringing about a repetition of the farm-mortgage financial disasters of some 25 years ago. * • • Therefore I am most willing that authoritative warning be made on this point. EUROPEAN COOPERATIVi! RURAL CREDIT SYSTEM. 15 It seems to me indeed fortunate for the American farmer that this matter of rural co-operative credit has been taken up by Governor Herrick who has given it persistent and intelligent guidance. In view of this fact, I would respectfully suggest that Governor Herrick be made the Dean of the Select Committee in its labors in the Euro- pean countries. From your high appreciation of Governor Herrick's work in your letter of September 4th, just received, I am encHned to the belief that this proposal will meet with your hearty approval. I attach particular importance to your remarks on page 2 of the Congressional Eecord. You say : The European co-operative rural credit systems, wliicti we shall examine and endeavor to apply here, are substantially in the hands of the farmers, operated by farmers, for farmers. Clearly and persistently this must be borne in mind. The research and study it is proposed to make, and the data it is desired to collect and colate and utilize, are intended primarily for the advantage and benefit of the American farmer. And right here it is in order for the American farmer to do some cool and deliberate thinking, so as to place himself in a position for effectual accomplishment. We all know that we must employ the proper means if we are desirous of producing certain ends. This law holds good in bridge-building, in bread-mafing, in dish-washing, in anything that we do, and it holds good in the case under consid- eration. If the American farmer desires to benefit by the investigation of the European co-operative credit systems, it then becomes impera- tively necessary for him to be represented on the Select Committee, not merely by a per cent of its membership, but by a very large percent, the larger the better. The work should not be done vicari- ously for the American farmer; it should not be done for him by bankers, not should it be done for him by professional men, nor by men of leisure, nor by men of other occupations; it should, pri- marily, be done by the American farmer himself. It may be said that the farmer's mind is of too simple a calibre for the proper understanding of the great question before us, requiring as it does, financial, industrial, commercial and economic experience of the widest range and the highest order. Assuming this to be true, it nevertheless follows that the best composition of the commit- tee for the end in view will be in the main the farmers; for, let it once be understood that an authoritative delegation consisting mainly of American farmers, officially accredited by the states and by the nation, consisting of two from each state of the Union, is to visit the European countries for the proposed purposCj and this will at once arrest the attention of eminent and capable thinkers in all the world and bring forth their comment. It is these comments, when blended with the experience acquired by the American farmers on this Committee, which will indicate the most practicable method of adapting the European systems to meet the needs of agriculture in the United States. The American farmer should, therefore, busy himself in the work of obtaining the funds necessary for his State delegation. 16 EUBOPEAN COOPBEATIVE BUBAL CBEDIT SYSTEM. HOW TO OBTAIN THE TKAVELING EXPEKSES FOE THE DELEGATES. The $1,200 necessary for each delegate, or the $2,400 for the two delegates from each State should be promptly raised, and committees of ftrmers in the various sections of each State should be formed for that purpose. The money should either be raised by a canvas of farmers and business men, or through the legislatures in those states where they will be in session during the coming winter. Deter- mined effort on the part of these committees would soon materialize the funds. It now remains with the farmers to wake up to the importance of the situation: they should take a lesson from the energy and enter- prise displayed by the bankers in this matter, as above referred to. If the farmers do this work in such a manner as to secure the funds required for their delegates, they will have no cause to complain as far as the representation of tlieir interests is concerned. It would seem to me that representation on the Select Committee should be proportioned about as follows: 60 per cent farmers, and the remaining 40 per cent (composed mainly of " delegates at large") should consist of members of the University faculties, members of both Houses of Congress, national and state government officials, and men versed in commerce and finance. Such a committee would be received in Europe with the respect due to its importance and would have every facility accorded it in the accomplishment of its investigation. But the most important task before such an organized body would be its labors in the United States after its return, in elaborating and formulating that plan of co-operative rural credit which, by placing the .Ajnerican farmer on a sound economic basis, will promote the prosperity of the people and thus conserve the strength of the nation. WHERE CAN THE AMERICAN FARMER GET THE MONEY FOR HIS CO-OPERATIVE BANKING? My attention has been drawn to an article in the New York Times of September 8, by Chas. A. Conant, "Putting the farmer in com- mand of ready money." This article, which occupies the greater part of a page, is well written and gives valuable information. It contains, however, one statement that I feel it my duty to com- ment on. Mr. Conant, in reviewing my Report on the NashviUe con- ference on rural co-operative credit, seems to be under the impression that my proposition for the upbuilding in America of rural credit on the European systems is " to base the issue of currency upon the land." If Mr. Conant will reread pages 11 and 12 of the Report he will find that the suggestion offered is that the Government issue currency to the farmers' co-operative groups on the security of United States bonds. It is a proposal for co-operative agricultural national banks, on the same order as the urban national banks. The suggested rural national banks would deposit government bonds with the Treasury, just as the urban national banks do, and on pages 11-12 it is shown how the farmers' co-operative groups could EUROPEAN COOPERATIVE RURAL CREDIT SYSTEM. 17 obtain possession of government bonds for this purpose ; they would obtain their transfer from the bondowners by paying them a premium for the privilege. The bond owners would be secured by a negotiable bond on the collective lands of the farmers' group, and this negotiable bond, together with the transferred government bonds, would be deposited as security with the Treasury of the United States; the United States to act as umpire between the bond owners and the farmers' co-operative groups. However, this was merely one of several suggestions offered in the Report, suggestions which were headed by the following: Q. Have you any scheme or plan to suggest for the adaptation of the European systems you speak of to meet the needs of the American farmer? A. No, for, as already stated, the ultimate plan may only be set forth authori- tatively when the proposed committee from the several states in the Union has visited Europe, noted down what it has seen, and formulated its con- clusions, and thus brought the matter before the American people. Then only may a plan be authoritatively put forth. At this time I can only propose some possible or tentative phases of plans which occur to my mind. It will thus be seen that Mr. Conant was mistaken. This is not a plan to set the government printing presses at work issuing " cheap money for the farmers." That would be more like the plan of "Populism" advocated years ago by Senator Peffer. The sugges- tion contained in the Report strictly followed along the lines of the National Banks now in existance. Concluding his article Mr. Conant says: What the farmer needs is the application of more capital to the development of his existing plant and the extension of his arable land. The present system of converting land values Into negotiable form Is extremely defective In the United States. * * * The movement is a sane and a healthy one to con- vert the value of land Into a form as negotiable as the value of railways, mills and factories by the issue of negotiable securities. * * * if the farmer can convert his assets Into a form equally negotiable he will unlock for his use the stores of accumulated capital of the world. And here Mr. Conant has struck the key-note of the situation. While it would be premature, before the Select Committee brings in its findings, to set forth any plan dogmatically, there is, neveBthe- less, ample evidence at hand to show that it is quite possible for -the American farmers to obtain the free use of money ; as much as they need of it; and at the world's lowest rates of interest. They can obtain this for two reasons : First, because they have the requisite assets; Second, because there are ample funds available. As for the assets, the American farmers have the land, and plenty of it, and its earning power is potentially as great as it is in Europe. They have an asset of $40,000,000,000. It is only a question of plac- ing that asset in negotiable form, in a form which would render it liquid in every state in the Union, in every bourse, in every exchange. This when done would enable the farmers to obtain more than double or treble the money they would need, and at the lowest rates of interest in the world. The average merchant in the United States sends in his balance- sheet to the Dun or Bradstreets mercantile agency, and on the basis of the mercantile rating they assign him, obtains credit in the form of merchandise or from a bank. Supposing this rating shows that he S. Doc. 966, 62-3 2* 18 EUEOPEAN OOOPEEATIVB BUEAL CEEDIT SYSTEM. would be entitled to a credit of $5,000, what is to prevent this merchant from asking and obtaining fraudulently the $6,000 credit ten times over ? This is quite a possibility. Is there not danger in such a system? Yes, there certainly is, but then the banks and the mercantile world generally, strike a sort of statistical average for fraudulent failures and take the risk. Notwithstanding this risk, the average merchant can obtain money on open account at a bank at 5 per cent per annum. Now, the farmer, in order to obtain credit on his land, would have to have the transaction recorded in the public records, and this would preclude him from tampering with the security, and if the bond he offers be in liquid form, and the land placed at a proper valuation, the farmer's security would be of very much higher character than the merchant's. This greater security is at present dormant capital, dormant capital which, when brought into play, should secure the farmers' money at much lower rates than can be had by the merchant. Again, while the merchant must go to the manufacturer or to the banker for credit, the farmers by organizing in co-operative groups could go direct to the primary source from whence the savings banks and the commercial banks obtain their money ; they could draw upon the accumulated savings of the people direct. And this opens up the second phase of the question : where are the " antple funds available ? " In the first place let us take the case of the merchant with a surplus. What is he to do with it? Let me illustrate by a case in point. Let me quote from the corre- spondence of a business corporation on the investment of its surplus. One of the absent stock-holders had written recommending that the surplus be used in the purchase of United States bonds, in reply to which he received the following from the board of directors : When the question of making the investment of surplus was originally brought up before the Board, all forms of investment were discussed, and the question of buying government bonds received careful consideration. It is true that government bonds are very desirable and absolutely safe, but, in reality, they bring no income. In fact, when buying them you have to pay a premium, and when selling them, as a rule, you have to take a loss, which nearly eats up the 2 per cent interest paid by the Government. The letter then goes on to show that the corporation decided to lend out its surplus on commercial paper, and on this decision the following comments were made : Lending money on commercial paper is a banker's ftinction and demands a banker's experience. Now, when a mercantile corporation lends out its money on commercial paper It is performing a banker's function without a banker's experience. Weighing government bonds against commercial paper, the balance would appear to me to be in favor of government bonds for the following reasons : First, given a number of years, with the changes of security, with fluctu- ations and so forth, attending commercial paper, a percentage of the Interest must be written off as loss under the best kind of management, and this must be increasingly allowed for in proportion to the absence of technical banking knowledge. Second, commercial paper has a tendency to shrink most at the very time it is most wanted, in the time of panic. Third, in time of panic money is of value, first to meet bills, and secondly, to buy freely in a declining market. Government bonds would be more apt to eerve here than commercial paper. EUKOPEAN OOOPEEATIVE EUKAL CBEDIT SYSTEM. 19 The negotiable land bonds Issued by tbe German Landschaften associations, and by some otlier of the co-operative agricultural credit systems in Europe, supply to a great extent the need now existing in the UuiU'd States for a loan of a character closely approaching that of government bonds, but paying a moderately higher rate of Interest. So much for the surplus of business-houses as a source of capital for financing the rural co-operative banks. Now then, there are the other sources; there are the thousands of widows and orphans with life-insurance money paid to them. What are they to do ? Are they to invest it in commercial paper? Then there are the savings of the thousands in the industrial world; there are the people's savings deposited with the United States postal banks. And right here we have a field towards which all these various streams of money may be made to flow in a given direction, in the direction of supplying the co-operative groups of American farmers with all the money they may require, and at the lowest rates of interest in the world, provided these low rates of interest be justified by the character of the security offered and by the form in which that security is placed ; and this, of course, could only be done under national law and national supervision. And all this would supply the answer to the enquiry : where could the farmer get the money for his co-operative banking ? THE ITINEEARY FOR THE SELECT COMMITTEE. [Letter to Dr Clarence J. Owens, Managing Director, Southern Commercial Congress, Southern Building, Washington, D. C] In a recent letter you say : " You will greatly assist me if you will map out the itinerary for the Select Committee." In reply to your request, I wrote on for the opinions of authorities in the several countries to be visited, stating : The committe will leave New York some time in the latter half of April, to be in Rome during the session of the General Assembly of the Institute, to be held in the first fortnight in May. It will be due in New York on its return journey in the early part of August. Beginning and terminating in New York, the trip is to occupy 90 days time. The ocean voyage to and fro, and spare time, will take about 24 days, thus leaving about 66 days available for the investigation in the European countries. The following are some replies received to the above : OPINION OF THE DELEGATE OF HUNGARY. The Delegate of Hungary to the International Institute of Agri- culture, His Excellency, Sfr. Edmond de Miklos, writes from Alacska, Hungary : With regard to the itinerary of the Select Committee my judgment would be to make the study In the following countries : Italy 8 days ; Austria 5 days ; Hungary 5 days ; Germany 10 days ; Denmark- Sweden 10 days ; Belgium-Holland 10 days ; France 8 days, and England 8 days. Two days could be used here or there, thus making up the 66 days. The best route would be for the committee to go from Italy direct to Hun- gary, and thence, via Austria, to Germany. My Government will do its utmost to receive your compatriots with the honor due to your fine country and to our old friendship and sympathy. 20 EUROPEAN COOPEBATIVE KUBAL CBEDIT SYSTEM. It seems to me it would be advantageous to the outcome of your work to draw up a list of questions and send o^er that list in January or February so that the different Governments and Associations may be enabled to arrange m advance the best facilities for the study by your Select Committee. THE OPINION OF THE SECRETARY GENERAL OE THE INSTITUTE. Prof. Giovanni Lorenzoni, Secretary General of the International Institute of Agriculture, writes : The itinerary could be mapped out on the following plan : Itaiy (Rome, Bologna, Piacenza, Milan, Cremona) ; Austria-Hungary (Buda- pest via Trieste, Vienna, Prague) ; Germany (Dresden, Berlin) ; Denmark (Co- Denhagen) ; then back to Germany (Munster, Cologne, Darmstadt, Munich) ; France (Paris) ; Belgium (Brussels) ; Holland (The Hague) ; Great Britain and Ireland (London, Dublin) and from Queenstown back to New York. OPINION OF THE PRESIDENT OF FEDERATION OF AGRICULTURAL CO-OPER- ATIVE SOCIETIES OF GERMANY. The following is the opinion of Mr. H. E. Haas, President of the " Eeichsverband der deutschen landwirtschaftlichen Genossenschaf- ten," Darmstadt, Germany : It was with great interest that I noted the contents of your letter of July, 1912, with regard to the itinerary of the American Committee on their tour in Europe for the purpose of studying the European rural co-operative credit systems. I also received, some days ago, a letter from the Secretary of State for the Interior giving me all the necessary information relating to the pro- posed tour. Speaking in the name of the " Imperial Union of German Agricultural Co- operative Societies" I shall be most pleased to afford your committee every facility possible to make their tour in Europe, and more especially in Germany, of the greatest service. With regard to the itinerary of the committee, as its purpose is the study of the organization of the co-operative rural credit systems, it is of course under- stood that kindred branches, such as co-operative purchasing, dairy farming, marketing, and the other field? or co-operative activity, should only be treated as of secondary importance, leaving the greater part of the time for the study of agricultural credit. It is certainly advisable that the tour begin in Rome, so that the committee take part in the General Assembly of the International Institute of Agriculture, in May 1912 where they will meet leading experts on this subject who will be in attendance. They can then first study the organization of the Italian co- operative credit systems. Considering the limited time at the disposal of the committee the tour should embrace only a few countries, so as to enable it to devote as much time as possible in those countries where these systems have reached their highest development. Subject to further consideration I should propose: Italy, Hun- gary, Austria, Germany, Denmark, France, and Ireland. I hope that Germany will have the privilege of receiving the committee and that the time devoted to it will not be too limited. As soon as I know how many days are reserved for the stay in this country I shall immediately pro- pose a detailed itinerary for Germany. I attach the greatest importance to the tour, but would suggest for your consideration that a sub-committee of the delegation make a longer stay in Ger- many and in some of the other countries, supplementing, by additional studies, the work done. I suggest this because England and Japan have applied this method with success. Awaiting your answer, I beg to remain, yours faithfully, H. B. Haas. V From the views set forth above, I would suggest that in making •''up your final itinerary you include the following countries to be visited by the committee as a whole: Italy, Hungary, Austria, Ger- EUBOPEAN COOPERATIVE EUBAL OEEDIT SYSTEM. 21 many, and France; while subcommittees should visit Russia (St. Petersburg) , the Balkan States, Sweden, Denmark, Switzerland, Bel- gium, Holland, and Ireland. For instance, while the committee as a whole is at work in Austria- Hungary, sub-committees could be detailed to Eussia and the Balkan States; while at work in Germany sub-committees could be detailed to Sweden, Denmark and Switzerland ; and when working in France sub-committees could go to Belgium, Holland and Ireland! The Select Committee shoula also, in my opinion, divide the inves- tigation it is to make into four main branches, with a sub-committee for each of the following : The Raiffeisen, the Schulze-Delitsche, and the Landschaften systems, as well as the Landwirtschaftsrat. These studies again will have to be sub-divided under the following heads : farms, co-operative societies, universities and colleges, government departments, legislation and laws, credit banks, central oanks, and agricultural associatioiis. Besides these, there should be a committee on organization with the following subdivisions : finance, audit, bye- laws program, report, route. A plan like this would give the Select Committee the information on all the various systems in the European countries. At the same time, it would give the Committee as a whole the best opportunity for investigation in the five principal European centres of rural co- operative credit. In view of the importance of Germany for the purpose of this in- vestigation, it seems to me that one month's time should be devoted to that country. I would also suggest that in visiting a country each important section of the same be assigned to a sub-committee, each sub-committee reporting to the Committee as a whole on stated occasions. It would seem to me that you are now in a position to conclude your arrangements with Thomas Cook and Sons for the tour of the Select Committee. David Lubin, Delegate of the United States, International Institute of Agriculture, Rome, Italy. Correspondence on this work should be directed to the " Southern Commercial Congress, Southern Building, Washington, D. C." and requests for publications on the subject to the "American Delegate, International Institute of Agriculture, Rome, Italy." The select committee will report to the Southern Commercial Con- oress at its next annual convention, which will be held in Mobile, Ala., in the fall of 1913. - O