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£051 
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 CORNELL 
 
 UNIVERSITY 
 
 LIBRARY 
 
 BUSINESS 
 
62d Congress, ) HOUSE OF REPRESENTATIVES, j Document 
 8d Session. J i n ggi 
 
 ■^i^ 
 
 AGRICULTURAL CRED 
 
 Cornell University Library 
 HG2051.U5H68 
 
 Agricultural credit banks. 
 3 1924 019 326 622 
 
 AN ARTICLE BY O. R.HftBSON, M. A., ENTITLED "AGRICULTURAL ^" " >l " 1 ! 
 CREDIT BANKS," PUBLISHED IN THE JOURNAL OF THE INSTI- 
 TUTE OF BANKERS, LONDON. 
 
 July 27, 1912.— Ordered to be' printed. 
 
 An agricultural credit bank, as its name implies, is a bank the 
 main object of whose existence is to grant credit to those engaged in 
 agriculture. It is, in fact, the function of the agricultural Dank to 
 finance agriculture in just the same way as the ordinary joint stock 
 bank considers it at any rate part of its business to finance industry. 
 The large joint stock bank is chiefly the product of tbe industrial 
 revolution which, consequent upon the invention of machinery and 
 the discovery of steam power, largely increased the importance of 
 capital as a factor of production at the expense of labor, thus replacing 
 the small producer by the wealthy capitalist and the joint stock 
 company. Of the agricultural credit bank, on the other hand, it 
 would be more true to say that it was the cause than the effect of an 
 agricultural revolution; for its growth was due rather to the wisdom 
 oi those who saw that the methods of financing industry might with 
 advantegs be applied to agriculture than to any demand on the part 
 of agriculture itself for credit as a means to increasing the produc- 
 tivity of the soil. But though it is true that capital can be used in 
 agriculture as well as in industry, the evolution of the agricultural 
 credit bank has not been, and can not be, similar to that of industrial 
 credit banks. 
 
 In the first place, the industrial credit bank can with advantage 
 do business with a large number of different industries, while the 
 agricultural credit bank must, in the probable absence of any other 
 form of business, confine itself almost exclusively to agriculture. 
 Secondly, while industrial production has fallen chiefly into the hands 
 of the large capitalist, agriculture has, to a very large extent, whether 
 for social or economic reasons, continued to be carried on by small 
 men, and it is thus chiefly with the small and poor man that the 
 agricultural credit bank has to deal. 
 
 Agricultural credit banks may plainly be organized on three differ- 
 ent principles, namely, (1) as State controlled institutions, (2) as 
 joint stock, or private profit-earning companies, (3) cooperatively, as 
 cooperative societies. 
 
 " As this essay will be concerned mainly with the discussion of banks 
 included in the third category it will not be out of place to indicate 
 
 l7o 
 
"Business 
 
 ■■^ q Fj I 1 2 AGBICULTTJBAL CBEDIT BANKS. 
 
 U5l"\£$ at the outset the general grounds for rejecting those of the first two 
 classes as unsuitable, amplifying and illustrating them later from the 
 experience of countries in which such institutions exist and flourish. 
 
 (1) The objections to the management or control by ^the State of 
 agricultural credit banks are in the main those which apply to all 
 State enterprise of a commercial character. Institutions managed 
 by the State are liable, owing to the absence of competition and the 
 lack of incentive on the part of its employees, to be conducted without 
 that regard for efficiency and economy which is essential to the success 
 of private industrial undertakings. This is a defect which is prob- 
 ably inseparable from State trading; and though there may in many 
 cases be countervailing reasons which will justify the State in under- 
 taking for itself, to the exclusion of private firms or persons, the 
 production of certain commodities or the supplying of certain wants, 
 it will scarcely be maintained that agricultural banking is one of 
 these. For the agricultural credit bank Is concerned, as we have 
 seen, with the granting of credit to men of little substance engaged in 
 a notoriously uncertain occupation, and for this reason extreme vigi- 
 lance and economy of management are above all things essential for 
 \\a success. 
 
 The State may, indeed, carry on the business at a loss, but such 
 protection granted to one industry at the expense of the others is 
 scarcely likely to conduce to its real benefit, but is calculated rather 
 to lead it to rely more and more on artificial support till it becomes 
 finally incapable of existing without it. This criticism will apply 
 also to State doles and bounty feeding, even though the channels 
 through which they are dispensed are not controlled by the State. 
 Credit can be as usefully employed by the agriculturist as by the 
 industrialist, but only if it be obtained in the way of business at its 
 market value. A farmer who pays the market rate for his loans 
 will consider carefully and think long whether the result is likely to 
 justify the outlay — whether, for example, the fertilizer which a loan 
 will enable him to put in is likely by the increased crop of next year 
 to yield him a margin of profit after he has paid the interest. If, 
 however, a bountiful but misguided government literally thrusts 
 upon him any sum he may choose to name at an absurdly low rate of 
 interest, a very small knowledge of human nature will show that it 
 is more than probable that he will evolve his schemes for improve- 
 ment with a hght heart and end them with a lighter purse. 
 
 Assistance of this kind merely puts a premium on incompetence. 
 It is fairly claimed that facilities for credit will, in addition to the 
 material profit they afford, have the moral effect of stimulating con- 
 fidence and independence, but this result will only follow if such 
 credit is demanded and given as a matter of business on business terms. 
 This does not mean that the State can not do much to facilitate the 
 establishment of a system of agricultural credit banks, but it is sub- 
 mitted that the true criterion of any measure of assistance is this: 
 Is the proposed aid a temporary expedient for the purpose of tiding 
 the system over the critical period of youth, to be dispensed with as 
 soon as it reaches a more mature age ? Or, is it calculated rather to 
 reduce it to a permanent condition of weakliness and dependence ? 
 
 (2) It may appear surprising, at first sight, that the joint stock 
 banking system which, in the course of the last eighty years, has 
 established itself so impregnably throughout the civilized world, 
 
AGEIOULTUBAL CREDIT BANKS. 3 
 
 should be deemed incapable of adapting itself to the needs of the 
 small agriculturist. That it has not succeeded in doing so adequately 
 will probably be admitted. This fact is itself prima facie evidence 
 that it is not fitted for such a task; for, with the ever-increasing pres- 
 sure of competition, so obvious a development of banking business 
 would assuredly not have escaped notice had it been capable of suc- 
 cessful exploitation. There is no need, however, fo strain the point, 
 since the reason for this failing on the part of the 'joint-stock bank is 
 not far to seek. In point of fact the agricultural credit bank does 
 not pay, in the ordinary commercial sense of the word. The banking 
 transactions of the class of men with whom it deals are on so small a 
 scale that in any case it would be a matter of difficulty for a com- 
 mercial enterprise to undertake them with success. But the crux of 
 the situation lies in the fact that these small agriculturists have for 
 the most part no security of the kind acceptable to a banker to offer 
 as cover for their loans. In the case of the small proprietor a mort- 
 gage of his farm may, of course, be available, though such a proceeding 
 is m many cases too expensive and cumbersome; but the tenant 
 farmer has usually no collateral whatever to offer, save possibly the 
 hypothecation of future crops or of cattle or plant. Neither expedient, 
 though useful on occasion, is very desirable, nor likely to find favor 
 in the eyes of a banker. In the majority of cases, in fact, the lender 
 will have little more substantial to rely on than the personal security 
 of the borrower, supplemented, perhaps, by the guaranty of a friend 
 or two not much better, off financially than himself. It is evident, 
 therefore, that the professional banker will be unable to any large 
 extent to accommodate this class of customer. His existing branches 
 in the smaller towns are not so remunerative that he will easily be 
 induced to establish numerous further offices in country villages; 
 while the supervision of loans, covered by the type of security we have 
 described, is a task which would severely tax the powers of the most 
 vigilant and capable of managers. 
 
 Further, the periods for which loans will frequently be required are 
 much longer than that for which the joint-stock bank cares to part 
 with its funds. Agricultural credit must in general be long-term 
 credit. The farmer does not, as a rule, turn his money over nearly 
 so rapidly as the manufacturer or tradesman. For few agricultural 
 purposes is a loan for less than six months of much use; and where it 
 is required for the purchase of a fertilizer or the erection of buildings 
 the necessary period may run into years. 
 
 We may conclude then that the joint stock banking system, through 
 no fault of its own, but owing to the inherent difficulties which the 
 task involves, can not hope to succeed in adapting itself to the needs 
 of the small agriculturist. 
 
 (3) The Cooperative Society is defined by Mr. Fay as "an associa- 
 tion for the purposes of joint trading originating among the weak and 
 conducted always in an unselfish spirit, on such terms that all who 
 are prepared to assume the duties of membership may share in its 
 rewards, in proportion to the degree in which they make use of their 
 association." 1 The cooperative bank is a cooperative society for the 
 purpose of carrying on the- trade of banking. It is, in fact, a bank in 
 which the proprietors and the customers are one and the same body 
 
 i "Cooperation at Home and Abroad," p. 5. 
 
4 AGBICTJLTTJBAL CREDIT BANKS. 
 
 of people. The qualification for membership of a credit society is the 
 subscription of one or more shares of small amounts which are not 
 transferable, 1 but may be refunded when membership ceases. The 
 liability of a member for the debts of the society may be limited to the 
 amount of the paid-up share or to a multiple of it, or, as is more usual, 
 may be without limit. Subject to the payment of this share, with 
 possibly a small entrance fee, anyone who can give proof of satis- 
 factory personal character is freely admitted. 
 
 What grounds have we for supposing that such an association of 
 men of small means, utterly without training in the business they 
 are to conduct, will succeed, where the State with its unlimited finan- 
 cial resources and the professional banker with his expert knowledge 
 are, as we have suggested, doomed to failure? What qualifications 
 for the task do these pigmies possess which the giants of the finan- 
 cial and political worlds can not claim with a hundred times more 
 plausibility ? 
 
 These are questions which a statement of claim on behalf of 
 cooperation wul at once call forth. They are questions to which 
 a, priori reasoning can supply no answer half so convincing as the 
 actual history of the movement. Before passing, however, to the 
 consideration of the systems themselves from the dynamic point of 
 view, we may indicate briefly wherein it is that the strength of the 
 cooperative rural credit society lies. We shall find that it lies mainly 
 in two directions, the one peculiar to itself, the other shared with 
 other forms of cooperation. « 
 
 It has already been pointed out that the small agriculturist, while 
 he needs credit, and can put it to good use, suffers from the great 
 disadvantage that he has no adequate security of the type usually 
 required to offer. Now, the place of material security can only be 
 taken by personal security, by a system, in fact, by which the bor- 
 rower will borrow on the security of his own character, together with 
 that of a number of his friends who may be willing to back their good 
 opinion of him by guaranteeing the payment of his loan. For the 
 success of this plan it is manifestly essential for the members of the 
 society in general, and the guarantors of a loan in particular, to keep 
 a sharp watch on the borrowing member, to see that the loan is duly 
 applied to the purpose for which it was granted, and that its repayment 
 is not jeopardized by the folly or incompetence of the borrower. The 
 situation is summed up with characteristic Gallic felicity by M. 
 DScharme, of the French Ministere d'Agriculture, when he describes 
 credit banks of his country as being "in communities where every- 
 body knows everybody else, and they always ask what the man wants 
 to borrow for, and if he says he wants 400 francs to buy a cow, they 
 watch him, and if, four or five days afterwards, he has no cow, thev 
 know it." ' _ J 
 
 The system is, in fact, an extension of the cash credit system of 
 Scotland, to which, in the words of Macleod, "the marvelous progress 
 and prosperity of that country is mainly due." Its fundamental 
 characteristic is that the supervision of loans is conducted without 
 expense, and conducted efficiently, because it is to the' interest not 
 only of guarantors but of all the members 'of a society to exercise the 
 strictest vigilance. 
 
 i " Cooperation at Home and Abroad." Appendix. 
 
 » Interviews on the Banking and Currency Systems of England, Scotland, eto. (U. S. Monetary Com- 
 mission.) J 
 
AGBICULTUBAL CEEDIT BANKS. 5 
 
 The second important asset of the cooperative bank — that which 
 it possesses in common with cooperative supply and sale societies — 
 is the power of collective bargaining. As the cooperative supply- 
 society can buy at wholesale rates and sell to its members at less than 
 retail prices, owing to the elimination of middlemen's profits, so the 
 cooperative credit society is able to command loans and deposits at 
 moderate rates on the joint security of its members, relending to the 
 latter at lower interest than they can individually obtain. 
 
 The combined effect of these two factors, inexpensiveness of man- 
 agement and collective bargaining, is that the cooperative bank can 
 grant credit on cheaper terms than the joint stock bank, while making 
 the business pay where the latter can not. 
 
 With this brief preliminary indication of the nature and methods 
 of the agricultural credit society, we must proceed to consider the 
 actual systems in existence, beginning with those of Germany, the 
 pioneer of the movement. 
 
 Germany. 
 
 It was in 1848, the year in which the acute distress of the poor at 
 last found vent in revolutions and uprisings throughout Europe, that 
 the seeds were first sown of that great system of cooperative credit, 
 whose influence on the agricultural world it would be difficult to over- 
 estimate. 
 
 The movement in Germany, in contrast with the pretentious but 
 ill-fated scheme of Proudhon in France, started unostentatiously 
 enough. Its pioneers were two, Schulze and Raiffeisen, burgomasters 
 respectively of Delitzsch in Saxony and the district round Neuwied 
 on the Rhine. 
 
 The circumstances which called forth their energies were the same 
 in each case, namely, the helpless distress of the poor. They saw, as 
 others did, that it was the economic waste caused by want of capital 
 which lay at the root of the evil. But they alone were able,, in the face 
 of general incredulity, to devise a remedy. The first efforts of both 
 were of the nature of individual attempts to relieve distress in their 
 districts. And when experience taught them that permanent amelio- 
 ration could only come through self-help, it was in the direction rather 
 of cooperative supply than of cooperative credit that. they v set out. 
 They organized small cooperative societies for the purchase of necessi- 
 ties of fife and raw materials. Thia, however, they soon saw was not 
 sufficient, because the poor were already deeply in debt to money- 
 lenders. It was the presence of the moneylender in their midst that 
 led the way to cooperative credit. Relief measures were of little 
 avail while the hurden of debt remained. Their efforts were thus 
 directed toward the establishment of credit societies; and as the out- 
 come we have two distinct systems, differing, if not essentially as the 
 more fanatical adherents of either would have us believe, yet in 
 details sufficiently important to justify a brief examination of each. 
 The points of difference will be found to be due mainly to the slightly 
 different functions which the two systems perform, but partly, also, 
 to the different spirit which animated their founders. 
 
 The Raiffeisen banks are purely agricultural banks, drawing 
 their members very largely from the class of small farmers and 
 agricultural laborers. Each bank serves a very small area, an 
 area limited hVf act by the practical requirement that all the mem- 
 bers should know each other. The Schulze banks on the other 
 
6 AGBICULTUBAL CEEDIT BANKS. 
 
 hand are situated chiefly in urban districts, their business lies among 
 small men of every class, industrialists and shopkeepers as well as 
 farmers, and the area from which their members are drawn is far 
 less restricted than under the Raiffeisen system. In fact the Schulze- 
 Delitzsch banks are commonly called town banks, 1 and in so far as 
 that is the case they are outside the scope of our survey. The de? 
 scription, however, would seem to be hardly quite accurate, since 
 of their members the largest class, about 27 per cent of the whole, 
 is classified as "independent agriculturists." 2 In view of this and 
 the further fact that they have always regarded the Raiffeisen banks 
 as competitors, we should not be justified in excluding them from 
 consideration. 
 
 Membership and organization. (1) Schulze-Delitzsch banks. — The 
 gover ning idea in Schulze's mind was that his banks should be quite 
 above suspicion of any connection with charity and still more with 
 religion. They were to be self-sufficient, independent, profit- 
 making concerns, only differing from joint stock banks in that the 
 members alone were to have an interest in profits earned. Acc&rd- 
 ingly admission to membership must not be made too easy. The 
 amount of the share was therefore fixed at a comparatively high 
 figure, the minimum being about £6, while the average is no less 
 than £17. 3 Payment by installments within a reasonable time is 
 allowed. Over and above this there remains the unlimited liability 
 of each member, limited liability, first allowed by the law of 1868, 
 being a feature of only few societies. Thus no effort was spared to 
 secure members of thrifty and industrious character, and also to 
 establish the societies from the first on a sound basis. For this lat- 
 ter purpose, also, strict rules were laid dwn as to the building up and 
 administration of the reserve fund. For the first year or two all 
 profits are allocated to reserve, and thereafter 15 to 20 per cent. 
 
 The administration of the banks is closely analogous to that of 
 the ordinary joint stock company. It consists of (1) the Aufsichtsrat 
 or directorate, elected by the general meeting of members, and (2) 
 the Vorstand, or management committee, three in number, appointed 
 by the Aufsichtsrat. The managers, in strict accordance with 
 Schulze's theory of the noncharitable, businesslike nature of his 
 banks, ape paid officials, a weak feature of the scheme being the 
 commission ailowed to them on business transacted. The Vor- 
 stand, " of course, superintends the actual working of the bank, 
 and also deals with the applications for advances, subject to the 
 possible intervention of the Aufsichtsrat in special cases. The 
 Aufsichtsrat determine questions of policy, and act also as an audit 
 and inspection committee. 
 
 (2) Raiffeisen banks. — The Raiffeisen banks were organized to 
 supply the needs of a far poorer class of people than those of the 
 Schulze-Delitzsch system — a class to which the subscription of 
 even a moderate share was an utter impossibility. Accordingly 
 Raiffeisen laid even more stress than Schulze on the necessity of 
 temperance and good character as qualifications for membership, 
 while he dispensed with such material evidence of their presence 
 as ability to subscribe a share, by having neither shares nor entrance 
 fee. The subscription of shares and the payment of dividends were 
 
 » Pay, op. cit., p. 19. « ibid., p. 42. » Ibid., p. 22: Wolfl, " People's Banks," p. 87. 
 
AGBICTTLTtTBAL CBEDIT BANKS. 7 
 
 indeed made compulsory by the law of 1889, but the Raiffeisen 
 societies continued to observe the spirit of their founder's teaching 
 by making the shares as_ small as possible, 10 marks being a usual 
 figure, and by voting their dividends once for all to a second reserve 
 or " Stiftungsfond. " The ordinary indivisible reserve fund is admin- 
 istered on the same lines as in the Schulze banks, though it is as a 
 rule smaller even in proportion to the size of the banks, as it has 
 been the custom to apply part of the profits of working to the reduc- 
 tion of the rate of interest on loans, which, for this reason, stands, on 
 an average, about 1 per cent less in the country than in the towns. 1 
 
 Unlike Schulze, Raiffeisen laid much stress on the moral and 
 religious character of his banks. Owing to this and to the smaller 
 business transacted the administration is almost entirely unpaid. 
 The management rests in the hands of a committee of five, while 
 to a council of inspection is intrusted the duty of auditing accounts 
 and supervising the committee. Both bodies are elected for a period 
 of years by the members, and on both the richer members, on whom 
 in case of failure would fall the chief burden of the liability, are 
 allowed by tacit consent to take the leading part. The services of 
 the members of both committee and council are given without 
 remuneration of any kind, the only paid official being the "rechner, " 
 or accountant, a nonmember appointed by the committee. 
 
 Funds and advances. — The funds with which both systems of 
 banks carry on their business consist of (1) share capital and reserve 
 funds, (2) deposits, (3) loans from central banks. 
 
 As regards the first item, the proportion derived from this source 
 is, of course, far larger in the case of the Schulze than the Raiffeisen 
 banks. Deposits, which are received both from members and non- 
 members, may be either small savings accounts, deposits proper 
 ("Depositen"), or drawing accounts. The first type form a steady 
 and comparatively cheap source of working capital. 2 The rate of 
 interest allowed averages about 3 to 3^ per cent, varying with the 
 length and notice of withdrawal. This is usually considerable, and 
 rightly so, as the class from which these deposits are drawn is one 
 that is peculiarly prone to panic. Their great merit is that being 
 largely the savings of nonborrowers they are not so likely to be 
 withdrawn just when they are most required. Deposits proper 
 differ from savings deposits in being usually of larger amount and 
 subject to shorter notice of withdrawal. The current account is 
 increasingly used in the Schulze banks, but, as might be supposed, 
 is of very small importance in the country banks. 
 
 Deposits are the mainstay of the German cooperative banks, and 
 the ability to attract them is generally regarded as the surest sign of 
 the stability and efficiency of a bank. But it is not to be expected 
 that purely local banks, as both Schulze and Raiffeisen societies are, 
 can always command deposits sufficient to satisfy the demand for 
 credit, or, again, can always find among their members an outlet for 
 all the funds at their disposal. They are thus constrained in the one 
 case to borrow from outside, and in the other to lend their surplus 
 funds where money is required. For these purposes a system of 
 central banks has been evolved, whose business lies almost entirely 
 
 • In 1904 popular savings deposited in cooperative banks were computed at no less than US millions 
 sterling out ofa total of 961 millions. Wolff, "Cooperative Banking," p. 135. 
 
8 AGRICULTURAL CREDIT BANKS. 
 
 among cooperative banks. These are a very important feature of the 
 cooperative banking system and will be considered further presently. 
 The need for them, it may be noted, is more felt by Raiffeisen than by 
 Schulze banks, because the former, drawing their deposits, as they do, 
 very largely from a single class, and doing their loan business with 
 the same class, are liable to greater fluctuations in the demand for 
 credit than the latter, which deal with a variety of different industries 
 and can thus hope to play off a boom in one against a slump in another. 
 
 Loans are principally granted against the personal pledge of one or 
 two friends of the applicant. The successful manipulation of this 
 form of security is the greatest achievement, as it is the sine qua non of 
 cooperative banking. It is only possible when the bank's operations 
 extend over only a small area, where the character and business trans- 
 actions of the parties concerned are common knowledge; and its suc- 
 cess is greatly facilitated where the area in question is served by but 
 one bank, .in which case the danger of "cross-firing" by mutual 
 guarantee is easily avoided. In cases where this form of security is 
 not available owing to the applicant being a newcomer in tbe district, 
 or for any other sufficient reason, loans against negotiable securities or 
 land mortgage may be resorted to. The Schulze banks also grant 
 occasionally blank credits, where -the stability of the borrower is 
 beyond question. 
 
 The form of the loan is either the promissory note of the borrower 
 or else simply a bond or undertaking to repay. The former plan is 
 often preferred, as, in case of failure to repay, the legal process of 
 recovery is simpler, while the note, being negotiable, can, if necessary, 
 be rediscounted with the central bank. The Schulze banks also dis- 
 count trade bills and grant cash credits on current account, but such 
 forms of advance are of course little required in purely agricultural 
 districts. 
 
 The normal term for loans in the Schulze banks is three months; 
 renewals being, however, frequently allowed. In the Raiffeisen 
 banks, for reasons which have already been considered, the periods are 
 much longer, the minimum being about a year, while loans for as 
 long as 10 years are not unknown. An important feature of the Raiff- 
 eisen system, however, is that loans can always be called at four weeks' 
 notice, though this right is never enforced, except when repayment is 
 seriously endangered by gross extravagance on the part of the bor- 
 rower or misapplication of the money lent. Members of the Raiffeisen 
 banks, when applying for loans, are always required to state the pur- 
 pose for which the money is wanted, and if th$ application is granted, 
 it is so on the distinct understanding that the money is used for the 
 purpose stated and for no other. Loans are commonly repaid by 
 installments, covering both principal and interest on a plan of amor- 
 tization. 1 
 
 Central hanks. — The functions of central banks have already been 
 touched upon. Their establishment was found necessary both for the 
 
 Eurpose of balancing the resources of the banks of the system, at the 
 ead of which they stand, lending to those which require money and 
 borrowing from those which have it to spare, and also, as the business 
 of the local banks developed, to act as clearing and collecting agents. 
 
 iFay, op. cit., p. 48. 
 
AGBICULTUBAL OEEDIT BANKS. 9 
 
 Raiffeisen instituted the first central bank, 1 the Rheinische land- 
 wirtschaf tliche Genossenschaf ts-bank, as a registered association with 
 unlimited liability, like the individual societies, in 1872. This bank 
 was, at the instigation of Schulze-Delitzsch, dissolved by the courts. 
 Schulze opposed the foundation of central banks both generally on the 
 
 f round that cooperative societies should be self-sufficient, autonomous 
 odies, and in particular because it was undesirable that cooperative 
 societies should themselves become members of other cooperative 
 societies organized likewise on the basis of unlimited liability. Raiff- 
 eisen, accordingly, in 1876, founded the Landwirtschaftliche Central- 
 darlehenskasse fur Deutschland at Neuwied as a limited liability com- 
 pany. His action was indorsed by the law of 1889, which specifically 
 allowed cooperative associations to become members of similar 
 societies provided the latter were organized on the basis of limited 
 liability. In addition to the Centraldarlehenskasse and its branches, 
 a number of provincial central bank's (Provinzialkassen) have since 
 come into existence. The Centraldarlehenskasse does no other busi- 
 ness beyond that with the local societies-, and its expenses are defrayed 
 out of the margin between the 3J per cent charged for loans and the 
 3i per cent 3 allowed on deposits. 
 
 In 1895 a State central bank, the Preussische Central Genos- 
 senschaftskasse, was established for cooperative societies — produc- 
 tive as well as credit societies — in the Kingdom of Prussia. Its 
 [mrpose- was to become the head of the existing "thus far head- 
 ess organization, for besides the Central Loan Bank there were 
 a number of other central banks for different groups of Raiffeisen 
 banks. 3 The Central Genossenschaftskasse does business not with 
 individual societies, but only with Provinzialkassen. 
 
 The Schulze-Delitzsch banks have never developed an elaborate 
 centralizing organization such as that of the Raiffeisen system, but 
 do business individually with the Dresdner Bank, which has absorbed 
 their earlier central bank, the Deutsche Genossenschaftsbank. The 
 relations of the individual societies to the Dresdner Bank, are, how- 
 ever, far looser than those of the Raiffeisen societies to the Prussian 
 Central Bank. The Dresdner Bank does not insist that societies 
 should deal with it exclusively, though it prefers that they should. 4 
 The Prussian Bank, on the other hand, makes it a condition that 
 banks dealing with it should deal with no other independent bank. 
 
 An interesting feature of the higher organization of the Raiffeisen 
 societies is the close connection between the banks and noncredit 
 societies. The credit society is, in fact, used as the channel for the 
 supply and sale of agricultural commodities, though in the case of 
 larger districts, where business is on a sufficiently large scale, the 
 departments are often kept separate. Cooperative dairies, however, 
 and other productive societies are kept distinct. The great advan- 
 tage of this interconnection of credit and noncredit cooperative 
 associations is, of course, the economizing of expenditure. But 
 where the two forms of activity can profitably be worked separately, 
 this would seem the better course, on the general principle of "ne 
 
 i Bulletin of the Bureau of Economic and Social Intelligence, July, 1911, Article on Central Banks. 
 
 sWolfl," People's Banks," p. 143. „.*..„. u * . , .. u , .„. t, ■» ■ 
 
 • The term "Raiffeisen banks" is used here, and Indeed throughout, to Include banks of the Raiffeisen 
 type, such as the Haas banks, not actually adhering to the Raiffeisen organization. 
 
 • U. S. Monetary Commission, Volume of Interviews. 
 
10 AGBIOULTUBAL OEBDIT BANKS. 
 
 sutor ultra crepidam," and also for the economic reason that while 
 the operation of the banks must be confined to a single parish, that 
 of supply, or sale societies, may more profitably embrace a larger area. 
 
 Finally the questions arise: How far have the German credit 
 banks succeeded? How far have- they justified the hopes of their 
 founders that through them credit would become accessible to the 
 poor man as to the millionaire ? 
 
 In the first place, as regards mere material success, there can not 
 be two opinions. Out of the few small banks which Raiffeisen and 
 Schulze started midway through the nineteenth century, there has 
 grown up a vast system of more than 15,000 separate offices of which 
 over 13,000 are of the Raiffeisen type. The ordinary commercial 
 standards of prosperity hardly apply, but as a whole the manage- 
 ment has been efficient, and most of the banks are on a sound financial 
 footing, while it is claimed that, there has not in either system been 
 a single failure — a truly remarkable achievement in view of the diffi- 
 culties which they have had to contend with. In the case of the 
 Raiffeisen banks, however, it must be admitted that the policy of the 
 management has not always been free from blemish, the mistakes 
 which have occurred being chiefly due to. unwisdom of the very kind 
 of which mention has just been made, namely, that of combining 
 cooperative purchase with credit. 
 
 The question as to how far the banks have succeeded in keeping 
 themselves accessible to the poor man is more controversial. The 
 Schulze banks have, in particular, been charged with falling away 
 from the ideals of their founder in this respect. There would seem 
 to be some justice in this accusation, for the banks have come to fill 
 in some degree the place occupied in English provincial towns by the 
 branches of joint stock banks. Perhaps, too, it would have been 
 wiser had the banks passed a self-denying ordinance limiting divi- 
 dends to, say, 5 per cent, though it can not be said that dividend 
 hunting has been the practice, still less that it has been pursued at 
 the expense, of reserve funds. The fact, however, remains that these 
 banks lend at a rate nearly 1 per cent higher than that charged by 
 the Raiffeisen banks. To the strong religious spirit with which 
 Raiffeisen inspired his organization this tribute at least must be 
 paid, that his societies have never turned to profit seeking at the 
 expense of their poorer members, while the Haas societies, which 
 seceded on the religious question, have in this respect remained 
 faithful to the teaching of their founder. 
 
 France. 
 
 Unlike the agricultural credit-society system of Germany which, 
 as we have seen, grew up gradually by natural evolution from small 
 beginnings, to develop finally into a complex organism of societies, 
 provincial unions, and central banks, the French Crfidit Agricole 
 was the creation of a moment, issuing, Minerva-like, fully-equipped 
 from the brain of the statesman. 
 
 The Credit Agricole was not, indeed, by any means the first attempt 
 which had been made in France to solve the problem of agricultural 
 credit. Numerous schemes had been evolved, all to be overtaken by 
 failure, except perhaps the least ambitious, that of M. Durand l 
 
 i Wolfl, "People's Banks," p. 429, soq. 
 
AGBICGXTTTBAL CBEDIT BANKS. 11 
 
 •which therefore deserves passing notice. M. Durand's system of 
 credit societies is a close imitation of the Raiffeisen system, and, like 
 it, is permeated with religion. M. Durand is a pronounced Roman 
 Catholic, and it is, according to Mr. Wolff, the well-known attitude of 
 the State toward Romanism in France which has impeded the growth 
 of the system. However that may be, it seems to have reached the 
 limit of its expansion, though it has reached a position of not incon- 
 siderable importance and continues to prosper. 1 
 
 The State-endowed Credit Agricole Mutuel was founded as recently 
 as 1899, and while it is thus impossible to estimate its results with 
 any finality, its unique constitution renders it of great importance 
 to the student of agricultural credit. The groundwork of the system 
 consists of a number of individual societies organized on the principle 
 of Raiffeisenism. In the large majority of cases the liability of mem- 
 bers is unlimited, though limited liability is allowed. Each member 
 takes up one or more shares of 20 francs, on which only 5 francs need 
 be paid up at the start. The sphere of operation of these societies 
 or 'caisses locales" is a commune. Each society when it is founded 
 makes over the whole of its capital to the central bank or "caisse 
 r6gionale" of the department in which it is situated. These caisses 
 r6gionales are, unlike the individual societies, actually established 
 by the State. They are under the control of the Credit Agricole, 
 which appoints officials to inspect them and to which they send their 
 accounts and copies of the minutes of their boards. 
 
 The funds for the financing of the scheme are largely supplied by 
 the State, which, as a condition of the renewal of the charter of the 
 Bancpie de France in 1897, enacted that the bank should lend, with- 
 out interest, a sum of 40 millions of francs for the purposes of agri- 
 culture, and should in addition furnish a further annual sum by way 
 of tax for the same purpose. The amount of this latter contribution, 
 which depends on the average bank rate for the year, amounts 
 usually to about 5 millions of francs. These funds are dispensed 
 through the channel of the regional banks. The latter, as we have 
 seen, receive their capital from the local banks, and as soon as this is 
 made over to them they are entitled to a loan free of interest from 
 the State of four times the amount subscribed. From these funds the 
 regional banks lend to the local offices at 3 per cent, and the local 
 offices in their turn lend to their members at 3£ to 4 per cent. The 
 process by which this is done is as follows: An application for a loan 
 is considered in the first instance by the "conseil" or administrative 
 committee of the local office, which is elected by the members. If ap- 
 proved, the application is then submitted to the committee of the 
 regional bank, which is elected by the representatives of the local 
 banks in its district. If the latter finally pass the loan, the applicant 
 draws a bill on himself for the amount sanctioned. This bill is then 
 indorsed on behalf of the local office and discounted by the regional 
 office. Should the latter, however, not have sufficient funds for the 
 purpose, it may again indorse the bill, which will now have three 
 names, and can therefore be rediscounted with the Bank of France. 
 Thus the funds at the disposal of the regional office are not limited 
 to the amount furnished by the Government. It should be noticed, 
 however, that the process of discounting with the bank leaves no 
 
 i Wolff (loo. cit.) gives the number of banks as about 800, with an average membership of about 40. 
 
12 AGRICULTURAL CREDIT BANKS. 
 
 margin of profit to the regional office. These bills usually run for 
 three months, but may be renewed for further periods of three 
 months, provided the total period of the loan does not exceed two 
 years, and that one-half is paid off at the end of the first year. 
 
 It will be apparent from this sketch of its machinery that the 
 Credit Agricole is a highly centralized State-endowed institution, 
 and, sldllfully though it has been managed, it does not escape from 
 the defects natural to such a system.'. In its desire to force the pace 
 the Government has been compelled to rely as little as possible 
 on the inexperience of the farmers, and has therefore formulated 
 stringent rules governing the granting of credit. Loans are granted 
 solely for agricultural purposes, which are set forth in elaborate 
 schedules, together with the amounts appropriate to each. Little 
 encouragement is thus given to the members of the societies to appre- 
 ciate the true value of money or to acquire experience in the manage- 
 ment of the bank. Again the finance of the scheme leaves something 
 to be desired. The caisses regionales" are intrusted not merely 
 with a State contribution of four times the amount of their capital. 
 They may increase their liabilities almost indefinitely by discounting 
 with, the Bank of France. M. Decharme himself gives an instructive 
 example of this l when he describes how, during a recent crisis in the 
 wine-growing district of Montpellier, the regional bank, with a capital 
 of a million francs, lent, in all, sixteen millions, being eleven millions 
 over and above its own capital and the proportion lent by the State. 
 M. Decharme quotes this incident with evident approval, but what- 
 ever be the merits of the particular case, it is difficult to believe that 
 such a policy might not lead to a dangerous collapse. It is true that 
 the "conseil" of the regional office watches over the local banks, 
 and that the regional office itself is subject to the supervision and 
 inspection of the department, but it is doubtful whether such sur- 
 veillance from a distance is as effective as the interested vigilance of 
 the Aufsichtsrat of the Raiffeisen society. 
 
 It would seem, however, that the authorities are not insensible 
 to the dangers of State endowment, for the hope is expressed that 
 the bank's loan of forty millions, though not the yearly contribu- 
 tion, will ultimately be repaid. To do this a large increase in the 
 deposits, which at present are small, is essential, and this in view of 
 the well-known thrift of the peasantry should not be impossible, if 
 the inveterate habit of hoarding can gradually be broken. 
 
 In spite, however, of the defects of the system the results are not 
 discouraging. There are now regional banks in every department, 
 and the local offices number nearly 3,000^ with an average member- 
 ship of between 40 and 50. The average credit per member per 
 annum is about 500 francs, but the whole amount placed at the dis- 
 posal of the Credit Agricole by the State has not been required, and 
 it has been necessary to find other outlets for it. 
 
 Other Countries. 
 
 We have considered the German and French svstems in some 
 detail — the former not only because it was the first" in the field and 
 has reached a higher pitch of development than that of any other 
 country, but also because every other system of agricultural banks 
 
 i Loo. olt., p. 613. 
 
A.GBICULTTJBAL CBEDIT BANKS. 13 
 
 has been to a large extent consciously modeled upon it and derived 
 from it, the latter because it is the example par excellence of a State- 
 controlled system. Several other European countries, however, 
 notably Italy, Belgium, and Austria-Hungary, are provided with 
 more or less efficient, if as yet inadequate, systems of credit societies. 
 These all follow the Raiffeisen type closely and can only be briefly 
 alluded to here. 
 
 The experience of Italy is interesting, because in no other country, 
 probably, has Raiffeisenism had such overwhelming difficulties and 
 obstacles to contend against. The poverty and ignorance of the 
 
 1>easantry were, and still are, almost incredible, while everywhere the 
 and was in the grip of the usurer. In spite of this, however, the 
 system has won its way with notable success. It was in 1883 that 
 Wollemborg, the Raiffeisen of Italy, started the first "cassa rurale" 
 with 32 members at Loreggia. Since then great progress has been 
 made, and there were in 1908 at least 1,500 banks, 1 a large propor- 
 tion of them of Catholic foundation, having loans outstanding of over 
 a million and a half sterling, and deposits of no less than two mil- 
 lions. Each member subscribes a share of one or two lire, and pays 
 also a small entrance fee, this latter feature being a departure from 
 strict Raiffeisenism. The total share capital amounted in 1908 to 
 nearly £20,000 and the indivisible reserve funds to more than twice 
 as much. 
 
 In Belgium, too, Raiffeisenism has been finally adopted as the solu- 
 tion of the agricultural credit question. An earlier attempt was 
 made, somewhat after the fashion of the French Credit Agricole, to 
 pump down credit by means of the Comptoirs Agricoles, which are 
 agricultural commissions, acting as intermediaries between the 
 National Savings Bank, which provides the funds, and the small 
 farmer who is to be thus tempted to borrow. This institution, how- 
 ever, has failed altogether to reach the small man, and its business 
 now consists in providing mortgage credit for well-to-do landowners. 
 The first Raiffeisen bank was founded in 1892 by the Abb6 Mel'laerts, 
 and the system has rapidly spread since then. In 1908 there were 2 
 584 "caisses locales," mostly, as in Italy, of Catholic complexion, 
 with an average membership of between 40 and 50. There are also 
 seven "caisses centrales," or central banks, which perform the two 
 functions of inspecting the local banks affiliated to them, and acting 
 as agents between the latter and the Caisse generale d'Epargne, 
 which lends to them on bills indorsed by the "caisse centrale." 
 Only the largest of these central banks, the "Boerenbond," has 
 become a Centralkasse, in the German sense, receiving deposits from, 
 and making advances to, the local banks without the aid of the 
 savings bank. It may be remarked that the State makes a grant of 
 100 francs to each bank, toward its foundation expenses, besides 
 contributing annually 25 francs to pay for inspection and audit. 
 
 We have now completed our brief survey of the systems of rural 
 credit existing in the chief European countries. We find that in 
 every case the basis of the system is the Raiffeisen credit society, 
 but that the superstructure, the organization by which the individual 
 societies are coordinated, differs considerably in the various instances, 
 both in point of development and in the degree of control exercised 
 by the State. 
 
 i W olfl, "People's Banks," p. 331. * Ibid., p. 382. 
 
14 agbicultubal cbedit banks. 
 
 The Case of England. 
 
 We come now to the case of England. In England there is as 
 yet nothing which can be dignified with the name of a system of 
 agricultural credit banks. The few societies," says Conrad, 
 "exist really only on paper."* The same remark applies also to 
 noncredit agricultural societies. The state of affairs is not that of 
 Denmark, where cooperative societies for supply and for sale of 
 produce abound, but banks are unknown. In England, the country 
 of Robert Owen and Holyoake, the birthplace of urban cooperative 
 societies, strange as it may seem, agricultural cooperation has hitherto 
 been a, failure. 
 
 We are thus faced with the question, Why is it that in England 
 alone of the important countries of Europe rural cooperation has not 
 succeeded ? The answer to this question will carry us some distance 
 at least toward the solution of the further questions with which we 
 are most concerned, namely: Do the conditions which have hitherto 
 prevented the establishment of an agricultural credit system still 
 prevail? And, if not, what kind of system is most suited to the 
 present conditions ? 
 
 The most important circumstance which has militated against 
 the development of agricultural cooperation in England is the system 
 of land tenure which prevailed throughout the nineteenth century. 
 England is a country of large properties and of large holdings. 
 During the first half of the last century, when corn growing was the 
 most profitable form of agriculture in western Europe, large holdings 
 were economically most suitable, and England was consequently 
 looked upon as the model agricultural country. With the opening 
 up of the trans-Atlantic markets, however, the competition of the 
 United States, Canada, and the Argentine cut severely into the profits 
 to be derived from the growing of cereal crops in Europe. Hence, in 
 England large tracts of arable land were converted into pasture. 
 The quantity of live stock and the output of dairy and market-garden 
 produce has increased during the period, but even here in consequence 
 of improved methods of transport and storage the effects of competi- 
 tion are severely felt. The conversion of arable land is, in the opinion 
 of competent authorities, not likely to go much further, owing to the 
 curtailment of the proportion of gram available for export from 
 North America; but it is becoming increasingly apparent that the 
 English farmer "has his only assured market in products like milk 
 and high-class fresh fruits and vegetables which must be supplied 
 close to the place of consumption. a 
 
 Now, it is in the producing of just this class of commodity that 
 the small holding has economic advantages over the large holding. 
 In the normal case the large farmer can produce more profitably 
 than the small farmer for just the same reasons that the large manu- 
 facturer can produce more profitably than the small manufacturer, 
 namely, because he has a larger command of capital, because he can 
 effect economies in working, and because he is in a better position for 
 bargaining. But where the individual care of plants is such that it 
 can not well be left to subordinates, or where the operations can not 
 
 i Conrad, "HandwBrterbuoh dcr Staatswlssenschaften" sab. tit., Darlehnskassenvereine 
 » "Quarterly Journal of Economics," May, 1010, article by C. E. Fay on "Small Holdings and Aerlcul. 
 tural Cooperation In England." ^^ ~6'«"" 
 
AGRICTTLTUBAL CBEDIT BANKS. 15 
 
 be reduced to rule, the economic positions may be reversed. It is 
 generally held by agricultural economists that this argument applies 
 to the case in question. So cautious a thinker as Prof. Marshall, for 
 instance, says: "Very small holdings have great advantages whenever 
 so much care has to be given to individual plants that machinery 
 is out of place ; and there is reason for hoping that they will continue 
 to hold their own in raising vegetables, flowers, and fruit." 1 
 
 That this analysis of the economic forces is substantially correct 
 is borne out by the fact that the large farms of 300 acres and over 
 are giving place, particularly in the eastern counties, to a smaller 
 type of from 50 to 300 acres, chiefly devoted to cattle raising and 
 dairy farming, while the still smaller class" of 5 to 50 acres has at any 
 rate ceased to diminish. Further, this change in the agricultural 
 conditions has found expression in the increasing demand for small 
 holdings, to which legislative effect has recently been given by the 
 small holdings and allotments act of 1907. This act empowers the 
 county councils to acquire, compulsorily if necessary, land suitable 
 for small holdings (5 to 50 acres) and allotments (under 1 acre), 
 which the applicants hold as tenants of the county council. It is 
 impossible to say at present to what extent the act will be successful, 
 but numerous applications have been approved and not inconsiderable 
 areas acquired. 
 
 Thus the case of England, as regards land tenure, stands in sharp 
 contrast to that of the chief continental countries, where, in the face 
 of adverse economic conditions, small proprietorship was kept alive 
 by the legislature for social reasons, while with the opening up of the 
 New World it has been favored by the circumstances we have just 
 mentioned. 
 
 It is obvious that in a country of large holdings cooperative credit 
 banks are not likely to succeed. Well-to-do farmers have no need 
 of special facilities for obtaining credit; they are strong enough to 
 make use of the town banks, and, as experience has proved, they are 
 averse to cooperative methods. 2 We have thus one very cogent 
 reason why cooperation, so successful under continental conditions, 
 has failed in the past in England. Our reasoning also gives us prima 
 facie ground for supposing that with the changing conditions in the 
 latter country the impediments to cooperation are passing away. 
 An6ther point, however, remains for consideration. The. small 
 tenant farmers of England are not in the same position as the small 
 proprietors of the Continent. The former are normally without 
 security of tenure. Their tenancy is liable to be ended at short notice. 
 In many cases, no doubt, this possibility is remote, and a tenant may 
 in practice have reasonable fixity of tenure together with, perhaps, 
 actual advantages over the small proprietor. In other cases, however, 
 the possibility is much less remote, and the effect of its existence is to 
 deter tenants from spending that amount of labor and of capital, 
 whether borrowed or otherwise, on their holdings which they would 
 spend were the conditions of tenure otherwise. But here, again, 
 the recent course of events has introduced changes. In the first 
 
 Elace, tenants of the county councils under the small holdings act are 
 kely to have considerable security of tenure, as the land they occupy 
 has been acquired and must be used solely for the purpose of small 
 
 l "Economics of Industry," Book VI, en. 10. » Sea Fay, "Cooperation," p. 206. 
 
16 AGBICTJLTUBAL CEEDIT BANKS. 
 
 holdings. Secondly, recent legislation has instituted compensation 
 for improvements. A tenant who improves the value of his holding 
 by his own care and at his own expense is no longer faced with the 
 risk, perhaps varying in the direct ratio of his efficiency, of losing 
 his holding and with it the capital sunk in it, or, in the alternative, of 
 paying rent upon his own improvements. 
 
 It would appear, therefore, that the agricultural conditions m 
 England are becoming very much more suited to the growth of a 
 system of cooperative banks than they were in the past. Indeed, it 
 is urged with much plausibility that without cooperation, both for 
 credit and other purposes, JJie small-holdings movement is doomed to 
 failure; for it is only by noncredit cooperation that the small holder 
 can profitably convey his produce to the markets and secure a fair 
 price for it on its arrival, and it is only by cooperative credit. that he 
 can find adequate capital to develop his land and can withhold his 
 goods from the market during a period of temporary depression. 
 
 It is very possible, however, that agricultural credit banks will not 
 reach the pitch of importance which they have attained in Germany 
 and elsewhere, and it is certain that their progress, if healthy, can 
 only be slow. Experience has shown that the chief difficulty which 
 those who have attempted to establish such banks have had to 
 contend against is the suspicion with which they are regarded by those 
 who have most to gain from them. The average farmer does not like 
 his business dealings or his financial position to be known by his 
 fellows, and the better class man has a rooted and very intelligible 
 objection to borrowing. A writer with a wide experience of these 
 matters writes of one particular attempt. "The usual difficulty is, 
 however, encountered; the tenants dislike having to find sureties 
 and the publicity involved in an application for a loan to a com- 
 mittee." 1 Conrad goes so far as to suggest that the English charac- 
 ter (Volkscharakter) is unfavorable. 2 This, however, is a dangerous 
 line of argument. Little progress of any kind would be possible 
 were natural conservatism always magnified into an insurmountable 
 obstacle. Probably educational work would do much to smooth 
 over these difficulties. There is no reason why the small farmer 
 should not learn — as the small business man has long since learned — 
 the difference between borrowing for productive purposes and borrow- 
 ing for consumption. And as to the publicity involved it can only be 
 urged that its unpleasantness, which should not be so very great in a 
 properly conducted society, is far outweighed by the advantages of 
 the system. Still, the difficulties must not be underrated, especially 
 as in England to-day the driving force of necessity will render less aid 
 than it did to Raiffeisenism in its early days. 
 
 We come now to the practical question — granting the desirability 
 of providing credit facilities for agriculture, what type of bank is 
 best suited to English conditions ? _ A complete answer to this ques- 
 tion is from the nature of the case impossible, for a social institution 
 of organic character can only grow up gradually, advancing along 
 tb,e line of least resistance. Little, therefore, can be said of the 
 higher organization of the system, which should come into being, as 
 in Germany, by a natural process of evolution as the need for it is 
 felt, not, as in France, on a predetermined plan to which the societies 
 
 ' Miss L. Jobb, " Small Holdings," p. 227. i Loe. eit, 
 
AGBICULTUBAL CEEDIT BANKS. 17 
 
 must learn to adapt themselves. Possibly a modus vivendi with, the 
 joint stock banks may be established by which needless competition 
 and duplication of machinery may be avoided to the mutual benefit 
 of both parties. As regards the societies themselves, it would seem 
 fairly plain that they must approximate closely to the Raiffeisen 
 type. As we have seen, this type of society has been universally 
 adopted on the Continent, and in every case it has succeeded, while 
 attempts on different lines have always sooner or later met with 
 failure. In fact, the experience of other countries has no alternative 
 model to offer. The Schulze-Delitzsch type of bank, though many 
 of its members are agriculturists, does not really meet the case. It is 
 only suited to more or less populous urban districts and for success 
 requires a strong industrial element among its members. Nor does 
 it satisfy the needs of the really "small" man, with whom we are here 
 most concerned, while in England it would stand no chance in face of 
 the competition of the already established joint stock banks. The 
 Raiffeisen system has this further advantage ' that it has in recent 
 years been tried with success in Ireland, while in England too such 
 banks as exist are based upon this model. 
 
 The experience of Ireland is in some respects more valuable for 
 England than that of continental countries, for in spite of differences 
 of racial character and land tenure, the general conditions obtaining 
 in the two countries are not dissimilar, while the legislation governing 
 cooperative societies is identical. The Irish societies are organized 
 closely on Raiffeisen lines. Applicants are admitted to membership 
 if they are known to be sober, honest, and industrious. Poverty, 
 
 Erovided it is not the result of the absence of these qualities, is no 
 ar. The members are jointly and severally liable for all the debts 
 of the society and liability continues for a year after cessation of 
 membership in respect of debts incurred before that event. 1 Bor- 
 rowers must be members of the society and must state the purpose 
 for which the loan is required. The usual security required is the 
 bond of two sureties guaranteeing the repayment of the loan with 
 interest at maturity or immediately in the event of its misapplication. 
 The funds of the societies are derived from three sources: Firstly, 
 deposits of members and others which receive interest usually at 3 \ 
 per cent; secondly, from joint-stock banks which have advanced 
 money at 4 per cent irrespective of bank-rate fluctuations; thirdly, 
 from the department of agriculture and the congested districts board. 2 
 In 1908 the sums received by the banks from these sources were 
 £20,000 from depositors, £15,000 from joint-stock banks, £1,000 
 from the department, and £6,000 from the board. 3 The societies in 
 that year numbered 268, with an aggregate membership of 17,400. 
 
 The English societies were, at the end of 1910, 40 in number. 
 They are nearly all affiliated to the Agricultural Organization Society, 
 and the rules by which they are governed are much the same as those 
 of the Irish societies. The Journal of the Board of Agriculture for 
 December, 1911, gives figures relating to 31 of these societies. The 
 aggregate membership of these was 663 in 1910, an average of 21 as 
 compared with the Irish figure of 65 for 1908 and the German figure 
 of "88 for 1905. The average amount of credit per member granted 
 
 i Beport of select committee of H. L., 1910, p. 12. * Ibid., pp. 22, 27. 
 
 » Debate In House of Commons, July 7, 1910, Speech of Mr. Hugh Barrie. 
 
 H. Doc. 891, 62-2 2 
 
18 AGBICULTTJKAL CREDIT BANKS. 
 
 during the year was little more than £2, comparing with about £25 for 
 the Raiffeisen banks in Germany. Two or three of the older socie- 
 ties appear to be in a nourishing condition, and have accumulated 
 considerable reserves, but in the large majority of cases the results 
 are as yet very meager. It is, however, only fair to point out that 
 all except 6 of the societies have been founded since 1904, while the 
 three years 1908-1910 have seen the birth of 27 societies. On the 
 other hand, the report referred to deals only with existing societies, 
 and gives no indication of the number of those which have failed to 
 survive their infancy. The funds of the societies are derived almost 
 wholly from deposits of members and others and from advances by 
 the joint-stock banks, the proportions for 1910 being £1,089 from 
 depositors and £488 from the banks. In England no funds have as 
 yet been received from Government sources, though to judge from a 
 recent speech of Lord Carrington l large amounts are likely to be 
 placed at the disposal of cooperative societies from the development 
 fund. This policy is also foreshadowed by the agricultural credit 
 and insurance societies bill introduced during the past session in the 
 House of Lords, which provides that the board of agriculture may 
 out of the small holdings account "make grants upon such terms as 
 the board may determine toward the cost of formation of the society 
 or the payment of the expenses of management of any recently 
 formed society." 2 This proposal has been strongly opposed by Mr. 
 Wolff and the other leaders of the movement, and, if a permanent 
 subsidy is intended, it would seem, in accordance with the opinion 
 already expressed in this essay; to merit their condemnation. The 
 section of the agricultural credit societies bill just quoted, however, 
 certainly implies that the grant is intended merely to encourage the 
 formation of societies without holding before them the prospect of 
 any further assistance when once they are in full working order. If 
 this principle be rigidly adhered to, we may, perhaps, on the analogy 
 of the "infant industry" argument, regard such aid as free from 
 objection. Probably there would be less risk of abuses in this con- 
 nection were the concluding words of the section omitted and the 
 proposed: assistance granted only "toward the cost of formation of 
 the society." As a further safeguard the grant might be withheld 
 till the end of the first year's working of the society, being then 
 allowed, conditionally upon efficient management and promise of 
 success, as a contribution toward the extinction of the probable 
 initial deficit. 
 
 A more satisfactory feature of Lord Carrington's speech was his 
 announcement that he had been assured by the representatives of 
 the principal joint-stock banks that they would be prepared to lend 
 money to the credit societies. It would undoubtedly be better from 
 the point of view of the ultimate good of the societies themselves 
 were they to supplement the deposits intrusted to them from this 
 source rather than by means of State loans carrying a low rate of 
 interest. No doubt the English banks would make the same con- 
 cession as the Irish banks, of lending at a fixed rate independent of 
 market fluctuations; and under the overdraft system the societies 
 would be able to satisfy their requirements without keeping any con- 
 siderable sum lying idle, which, of course, they could not afford to do. 
 
 • At Crystal Palace, Oot. 18, 19U. « Sep. 2 (1). 
 
AGBICULTUBAL CREDIT BANKS. 19 
 
 It is. significant that in Ireland the board of agriculture has in several 
 instances failed to secure the repayment of its advances, while no 
 such difficulty has been experienced by the joint-stock banks. It is 
 suggested that Irish agriculturists are disposed to regard a Govern- 
 ment loan as a Government grant, and possibly this sentiment might 
 be found not to be confined to Irishmen. Be that as it may, it can 
 not be too strongly urged that it is only if they are regarded as busi- 
 nesses and not as charitable institutions that cooperative credit banks 
 can hope to achieve lasting success. Accordingly, let the Govern- 
 ment promote their success as far as it can by the establishment of 
 technical colleges, by the demonstration of scientific methods and 
 model holdings, and by educational work in general, but as little as 
 possible by the promise of financial support. 
 
 As has already been pointed out, both the Irish and the English 
 credit societies — excluding those which add to their main non- 
 credit business that of granting credit to members — are organized 
 in accordance with strict Raiffeisenism on the basis of unlimited 
 liability. Raiffeisen laid great stress on this for two reasons — 
 first, because the peasants with whom he had to deal were so poor 
 that, they were unable to subscribe even small shares, and their 
 liability to the extent of their property, representing in most cases 
 little more than the "equity of redemption" of their heavily mort- 
 gaged farms, was therefore the only asset on which to raise the 
 necessary capital; and, secondly, because by this means he hoped to 
 instill into them a fit sense of responsibility and caution. Undoubt- 
 edly in the circumstances in which he found himself Raiffeisen was 
 right. But it is by no means so certain that the English cooperators 
 are right in following him in this respect. The German farmers, 
 among whom Raiffeisen worked, were so deeply involved in debt 
 already that they had no hesitation in pledging the little that was 
 left to them in return for the chance of freeing themselves from the 
 clutches of the money lender. The English farmer, on the other 
 hand, is comparatively unversed in credit dealings, and for that 
 reason the more afraid of unlimited liability. Evidence is not 
 lacking to support the view that men who have kept free from debt are 
 apt, however poor they are, to shrink from making themselves liable 
 without limit, however dazzling the prospect of gain may be. For 
 instance, in the case of the Italian and Belgian "banques popu- 
 lates," which are banks of the Schulze-IJelitzsch type, the attempt 
 to introduce unlimited liability proved a failure; 1 while in France, 
 as we have mentioned, the caisses locales of the Credit Agricole may 
 be of limited liability. Nor does the fact that the unlimited liability 
 type of bank has succeeded in Ireland prove anything to the contrary, 
 for there the usury of the "gombeen" man was widespread, and the 
 conditions in that respect more akin to those with which Raiffeisen 
 had to deal. 
 
 It would therefore seem not improbable that a system of limited 
 liability banks with partly paid-up shares would have the best 
 chance of success in England. This arrangement would have the 
 advantage of giving the bank a small capital to begin with, while 
 there is no reason why the uncalled portion of the capital should not 
 be sufficient security upon which to borrow. Indeed, there is an 
 
 » Wolff, "People's Banks," pp. 258, 361. 
 
20 AGRICULTURAL CREDIT BANKS. 
 
 instance upon record in which, a large provincial bank offered to 
 advance money to a cooperative society l on the condition that the 
 latter should issue £1 shares with two shillings paid up, the number 
 of shares taken up by each member to vary according to the acreage 
 of his holding. If, then, the joint stock banks are content to follow 
 this example and lend to this type of society, we may rightfully 
 claim to have disposed of one of the two main arguments of the 
 strict Kaiffeisenist in favor of unlimited liability, namely, that it is 
 essential for the raising of funds. The other argument is that without 
 unlimited liability the members of a society might become careless 
 as to whom they elected as members or selected to serve on the 
 committee or inspection council. 2 As against the system of limited 
 liability with fully paid shares this argument is no doubt valid, 
 but in view of the very considerable, though strictly limited, lia- 
 bility to which every member Would be exposed under the system 
 mentioned it will hardly apply to that case. 
 
 It may be pointed out here that if, on experiment, this type of 
 society proved more congenial to the English farmer, as we have 
 suggested it may do, the need for legislation in the direction suggested 
 by the committee of the House of Lords would no longer exist. A 
 credit society which desires to combine the business of supply or 
 sale with its banking business can not register itself as a "specially 
 authorized society" under the friendly societies act, under which 
 act all existing societies are registered. It may, however, register 
 under the industrial and provident societies act, but in that case it 
 must be a limited liability society. The committee came to the 
 Conclusion that it was desirable that small societies should have this 
 power of combining banking with trading, and in order to give effect 
 to their decision were forced to recommend the amendment of the 
 law in the direction either of granting trading powers to specially 
 authorized societies under the friendly societies act, or of permitting 
 unlimited liability societies to register under the industrial and 
 provident societies act. They chose the former alternative, but the 
 provisions of the agricultural credit societies bill indicate that the 
 latter was preferred by the Government. It will be seen that there 
 is nothing to prevent limited liability credit societies from carrying 
 on a trading business at present, and were they to displace the 
 unlimited liability societies the proposed amendment of the law 
 would be unnecessary. Its adoption, however, would have the 
 advantage of allowing the two types to exist side by side under the 
 same act until the "fitter" of the two ousted the other by a process of 
 natural selection. 
 
 Within the limits of this essay it has been, of course, impossible 
 to deal even cursorily with all the details connected with the organi- 
 zation of a system of agricultural credit banks, which deserve dis- 
 cussion. The question of the relative merits of the limited and 
 the unlimited liability society has been treated at some length because 
 it is not impossible that a modification of strict Raiffeisenism 
 in this respect would be justified in England, though such modi- 
 fication would in no way amount to the invention of a new sys- 
 tem. One further point, however, seems to deserve passing mention 
 
 i Soham Small Holders, Ltd., see "Quarterly Journal of Economics," Mav. 1910 loo clt 
 * Eoport of select committee of H. L., p. 11. ' ' 
 
AGRICULTTJBAL CEEDIT BANKS. 21 
 
 because of its paramount importance. This is the question of 
 the proper inspection and audit of accounts. It has been 
 found difficult to impress upon the small agriculturist the neces- 
 sity for the punctual and accurate keeping of accounts, particu- 
 larly in the case of the smaller societies in which transactions are 
 not of very frequent occurrence. A considerable number of the 
 Irish societies were reported to the department of agriculture 
 as unsatisfactory on this very ground. 1 The dangers of carelessness 
 of this kind would be still greater in societies which combined a 
 trading business with banking, and as it is only the smaller societies 
 which are likely to carry on this combined business, it is evident 
 that the need for proper inspection is very great. The Raiffeisen 
 machinery for the performance of this office has already been 
 described, but in IrelancLthe necessity for the committee of inspec- 
 tion has not been duly appreciated, while the Raiffeisen system of a 
 union of societies for mutual inspection has not been adopted. 2 The 
 experience of Ireland, therefore, would tend to show that inde- 
 pendent inspection by a Government official is the most satis- 
 factory way of dealing with the question, at any rate until the 
 societies are numerous enough and strong enough to combine for 
 this purpose. 
 
 Finally, we may sum up once again the chief reasons for regard- 
 ing Raiffeisenism as the only possible solution of the problem of 
 agricultural credit. The Raiffeisen system alone has been able to 
 utilize satisfactorily the only security which the small agricul- 
 turist has to offer, namely, his personal pledge to repay, supported 
 by the guaranty of men of his own class and standing. It alone has 
 been able to perform all that is demanded of an agricultural credit 
 bank without subsidy from charity or the State; not, indeed, with- 
 out the assistance of the man of education and the philanthropist, 
 but at least without his financial assistance, which alone could 
 deprive it of that spirit of robust independence in which lies half its 
 value. And this it has done, not in one country alone, or even in 
 Europe alone, but throughout the civilized world wherever it has 
 been tried, with a success that is beyond question and has all but 
 silenced criticism. In this essay we have been concerned only with 
 Europe, but we may conclude with the advice of one 3 — a civil serv- 
 ant of repute, be it noted, and no fanatic or blind reformer — who 
 has spent years in establishing the same system among the ryots of 
 India, "Find Raiffeisen! " 
 
 i Report of Select Committee. 
 > Ibid., p. 14. 
 
 » F. A. Nicholson, "Report regarding the possibility of introducing land and agricultural banks into 
 the Madras Presidency.': 
 
 o