Chapter V: On The Possible Futurity Of The Laboring-Classes

§ 1. The possibility of improvement while Laborers remain merely receivers of Wages.

There has probably never been a time when more attention has been
called to the material and social conditions of the
working-classes than in the last few years. The great increase of
literature and the extension of the newspaper has brought to every
reader, even where public and private charities have not sent
eye-witnesses into direct contact with distress, a more explicit
knowledge of the working-classes than ever before. The revelation
of existing poverty and misery is, often wrongly, taken to be a
proof of the increasing degradation of the working-men, and the
cause has been ascribed to the grasping cruelty of capitalists.
Instances of injustice arising from the relations of employers and
employed will occur so long as human nature remains imperfect. But
the world hopes that some other relation than that of master and
workman may be evolved in which not only many admitted wrongs may
be avoided, but also new forces may be applied to raise the
laborer out of his dependence on other classes in the community.

We are, at present, living under a _régime_ of private property
and competition. But certainly the progress of the laborer is not
that which can excite enthusiastic hopes for the future, so long
as he remains a mere receiver of wages. The progress of industrial
improvements has resulted, says Mr. Cairnes, in “a temporary
improvement of the laborer’s condition, followed by an increase of
population and an enlarged demand for the cheapened commodity....
Laborers’ commodities, however, are for the most part commodities
of raw produce, or in which the raw material constitutes the chief
element of the value (clothing is, in truth, the only important
exception); and of all such commodities it is the well-known law
that an augmentation of quantity can only be obtained, other
things being the same, at an increasing proportional cost. Thus,
it has happened that the gain in productiveness obtained by
improved processes has, after a generation, to a great extent been
lost—lost, that is to say, for any benefit that can be derived
from it in favor of wages and profits.... The large addition to
the wealth of the country has gone neither to profits nor to
wages, nor yet to the public at large [as consumers], but to swell
a fund ever growing even while its proprietors sleep—the rent-roll
of the owners of the soil.... The aggregate return from the land
has immensely increased; but the cost of the costliest portion of
the produce, which is that which determines the price of the
whole, remains pretty nearly as it was. Profits, therefore, have
not risen at all, and the real remuneration of the laborer, taking
the whole field of labor, in but a slight degree—at all events in
a degree very far from commensurate with the general progress of
industry.”(306)

Under these conditions, it seems that the only hope of an
improvement for the laboring-classes lies in the limitation of
population—or at least in an increase of numbers less than the
increase of capital and improvements. It is possible, however,
that Mr. Cairnes, with many others, has failed to recognize the
full extent of the improvement which is taking place in the wages
of the laborer under the existing social order. Although we hear
much of the wrongs of the working-men—and they no doubt exist—yet
it is unquestionable that their condition has vastly improved
within the last fifty years; largely, in my opinion, because
improvements have outstripped population, and because wide areas
of fertile land in new and peaceful countries have drawn off the
surplus population in the older countries, and because the
available spots in the newer countries like the United States have
not yet been covered over with a population sufficiently dense to
keep real wages anything below a relatively high standard. The
facts to substantiate this opinion, so far as regards Great
Britain, are to be found in a recent investigation(307) by Mr.
Giffen, the statistician of the English Board of Trade. For a very
considerable reduction in hours of daily labor, the workman now
receives wages on an average about 70 per cent higher than fifty
years ago, as may be seen by the following table:

Occupation. Place. Wages Wages, Increase fifty present or years ago, time, per decrease, per week. week. amount, per cent. Carpenters Manchester 24 0 34 0 10 0 (+) 42 Glasgow 14 0 26 0 12 0 (+) 85 Bricklayers Manchester(308) 24 0 36 0 12 0 (+) 50 Glasgow 15 0 27 0 12 0 (+) 80 Masons Manchester(309) 24 0 29 10 5 10 (+) 24 Glasgow 14 0 23 8 9 8 (+) 69 Miners Staffordshire 2 8(310) 4 0(311) 1 4 (+) 50 Pattern-weavers Huddersfield 16 0 25 0 9 0 (+) 55 Wool-scourers " 17 0 22 0 5 0 (+) 30 Mule-spinners " 25 6 30 0 4 6 (+) 20 Weavers " 12 0 26 0 14 0 (+) 115 Warpers and " 17 0 27 0 10 0 (+) beamers 58 Winders and " 6 0 11 0 5 0 (+) 83 reelers Weavers (men) Bradford 8 3 20 6 12 3 (+) 150 Reeling and " 7 9 15 6 7 9 (+) warping 100 Spinning " 4 5 11 6 7 1 (+) (children) 160

With increased wages, prices are not much higher than fifty years
ago. But the clearest evidence as to their bettered material
condition is to be found in the following table, which shows the
amount of food consumed per head by the total population of Great
Britain:

Articles. 1840. 1881.
Bacon and hams, 0.01 13.93
Pounds.
Butter, Pounds. 1.05 6.36
Cheese, Pounds. 0.92 5.77
Currants and 1.45 4.34
raisins, Pounds.
Eggs, No. 3.63 21.65
Potatoes, Pounds. 0.01 12.5
Rice, Pounds. 0.90 16.32
Cocoa, Pounds. 0.08 0.31
Coffee, Pounds. 1.08 0.89
Corn, wheat, and 42.47 216.92
wheat-flour, Pounds.
Raw sugar, Pounds. 15.20 58.92
Refined sugar, Nil. 8.44
Pounds.
Tea, Pounds. 1.22 4.58
Tobacco, Pounds. 0.86 1.41
Wine, Gallons. 0.25 0.45
Spirits, Gallons. 0.97 1.08
Malt, Bushels. 1.59 1.91(312)

The question then at once arises, whether capital has been shown
by the statistics to have gained accordingly, or whether there has
been a proportionally less increase than in wages. Says Mr.
Giffen: “If the return to capital had doubled, as the wages of the
working-classes appear to have doubled, the aggregate income of
the capitalist classes returned to the income-tax would now be
£800,000,000 instead of £400,000,000.... The capitalist, as such,
gets a low interest for his money, and the aggregate returns to
capital is not a third part of the aggregate income of the
country, which may be put at not less than £1,200,000,000.” It is
found, moreover—as a suggestion that property is more generally
diffused—that while there were 25,368 estates entered to probate
in 1838, of an average value of £2,160 each, there were 55,359
estates in 1882 of an average value of £2,500 each.

But yet the vast increase of wealth made possible by improvements
and the growth of capital would have bettered the condition of all
still more had population been somewhat more limited. As it is,
the material gain has been large in spite of an increase in the
population from 16,500,000 in 1831 to nearly 30,000,000 in 1881.
In other words, the landlords have been great gainers, while the
laborers have intercepted much more than Mr. Cairnes supposed.

There are at hand some very striking data relating to the United
States which point in the same direction as those of Mr. Giffen.
Charts No. XIX and XX show vividly how far the increased
productiveness of an industry, arising from greater skill and
greater efficiency of labor in the connection of improved
machinery, has enabled manufacturers to steadily lower the price
of their goods, and yet increase the wages paid to their
operatives. What was true of these two cotton-mills was true of
others within New England; for the rate of wages paid by these
mills was the rate current in the country in 1830 and in 1884.
While each spindle and loom has become vastly more effective, we
see by Chart No. XIX that the average production of each operative
constantly increased from 4,321 yards per year in 1830, to 28,032
yards in 1884; and this it was which made possible the
corresponding increase in the rate of wages from $164 in 1830, to
$290 in 1884. The sum of $290 a year as an average for each
operative, is a stipend too small to cause any general
satisfaction; but he must be gloomy indeed who does not see that
$290 is a cheerful possession as compared with $164. There is,
then, abundant ground for believing that in the past fifty years
the condition of the working-classes in the United States has been
materially improved. The diminishing proportion of the price which
goes to the capital is a significant fact, and illustrates the
tendency of profits to fall with the increase of capital.(313) The
same truth seems to be seen in the table given in a previous
chapter,(314) where the wages have been increased, but the hours
have fallen per day from thirteen to eleven since 1840.

§ 2.—through small holdings, by which the landlord’s gain is shared.

So far we have considered the chances for improvement in an
industrial order in which the present separation of capitalists
from laborers is maintained. But this does not take into account
that future time when cultivation in the United States shall be
forced down upon inferior land, and no more remains to be
occupied, and when capital may no longer increase as fast as
population. What must be the ultimate outlook for wages-receivers?
Or, more practically, what is the outlook now for those who are
wages-receivers, and for whom a more equitable distribution of the
product seems desirable? How can they escape the thralldom of
dependence on the accumulations of others?

In this connection, and of primary importance, is the avenue
opened to all holders of small properties to share in the increase
which goes to owners of land. It has been seen that owners of the
soil constantly gain from the inevitable tendencies of industrial
progress. If one large owner gains, why should not the increment
be the same if ten owners held the property instead of one? The
more the land is subdivided, the more the vast increase arising
from rent will be shared by a larger number. This, in my opinion,
is the strongest reason for the encouragement of small holdings in
every country. The greater the extension of small properties among
the working-class, the more will they gain a share of that part of
the product which goes to the owner of land by the persistent
increase of population. If, then, the gain arising from
improvements is largely passed to the credit of land-owners, as
Mr. Cairnes believes, it should be absolutely necessary to spread
among the working-classes the doctrine that if they own their own
homes, and buy the land they live on, to that extent will they
“grow rich while they sleep,” independently of their other
exertions. Land worth $500 to-day when bought by the savings of a
laborer, besides the self-respect(315) it gives him, will increase
in value with the density of population, and become worth $600 or
more without other sacrifice of his.

§ 3. —through co-operation, by which the manager’s wages are shared.

It will be found, however, that, of the various industrial
rewards, profits tend to diminish, meaning by “profits” only the
interest and insurance given for abstinence and risk in the use of
capital; but that the manager’s wages (wages of superintendence)
are larger than is commonly supposed in relation to other
industrial rewards, owing to the position of monopoly practically
held by such executive ability as is competent to successfully
manage large business interests. To the laborer this large payment
to the manager seems to be paid for the possession of capital.
This we now know to be wrong. The manager’s wages are payments of
exactly the same nature as any laborer’s wages. It makes no
difference whether wages are paid for manual or mental labor. The
payment to capital, purely as such, known as interest (with
insurance for risk), is unmistakably decreasing, even in the
United States. And yet we see men gain by industrial operations
enormous rewards; but these returns are in their essence solely
manager’s wages. For in many instances, as hitherto discussed, we
have seen that the manager is not the owner of the capital he
employs. To what does this lead us? Inevitably to the conclusion
that the laborer, if he would become something more than a
receiver of wages, in the ordinary sense, must himself move up in
the scale of laborers until he reaches the skill and power also to
command manager’s wages. The importance of this principle to the
working-man can not be exaggerated, and there flows from it
important consequences to the whole social condition of the lower
classes. It leads us directly to the means by which the lower
classes may raise themselves to a higher position—the actual
details of which, of course, are difficult, but, as they are not
included in political economy, they must be left to sociology—and
forms the essential basis of hope for any proper extension of
productive co-operation. In short, co-operation owes its existence
to the possibility of dividing the manager’s wages, to a greater
or less degree, among the so-called wages-receivers, or the
“laboring-class.” And it is from this point of view that
co-operation is seen more truly and fitly than in any other way.
For it is to be said that in some of its forms co-operation gives
the most promising economic results as regards the condition of
the laborer which have yet been reached in the long discussion
upon the relations of labor and capital.

§ 4. Distributive Co-operation.

It will be my object, then, to describe the chief forms in which
the co-operative principle has manifested itself. These may be
said, in general, to be four: (1) distributive co-operation, by
which goods already produced are bought and sold to members
without the aid of retail dealers; (2) productive co-operation, by
which associations are formed for producing and manufacturing
goods for the market; (3) partial productive co-operation in the
form of industrial partnerships between laborers and employers,
without dispensing with the latter; and (4) co-operative, or
People’s, banks. There are, of course, many other forms in which
the principle of co-operation has been applied; but these four are
probably the most characteristic.

Distributive co-operation is at once the simplest and the most
successful form, not merely because it requires less for capital
than any other for its inception, but also because it calls for
less business and executive capacity. The number of persons
capable of managing a small retail store is vastly greater than
the class fit to assume control of the very complex duties
involved in the care of wholesale houses—or, at all events, of
mills and factories. Distributive co-operation has its origin in
the fact that the expenses of a middle-man between the producer
and consumer may be entirely dispensed with, and in the fact that
more capital had collected in the business of distribution than
could economically be so employed. Its educating power on the men
concerned in teaching them to save, in showing the need of
business methods, and in instilling the elements of industrial
management, is of no little importance. It is, therefore, the best
gateway to any further or more difficult co-operative
experiments—such experiments as can be attempted only after the
proper capital is saved, and the necessary executive capacity is
discovered, or developed by training. In England co-operation
began its history in distributive stores, and has finally led to
such a stimulus of self-help in the laborer, that now co-operative
gymnasiums, libraries, gardens, and other results have proved the
wisdom of calling upon the laborers for their own exertions. Under
the system which separates employers and the employed, high wages
are not found to be the only boon which the receivers could wish;
for it is sometimes found that the best-paid workmen are the most
unwise and intemperate.(316) For the most ignorant and unskilled
of the workmen in the lowest strata the object would seem to be to
give not merely more wages, but give more in such a way as might
excite new and better motives, a desire as well as a possibility
of improvement. Self-help must be stimulated, not deadened by
stifling dependence on a class of superiors, or on the state. The
extraordinary growth of co-operation is one of the most cheering
signs of modern times. Distributive co-operation originated in
Rochdale, in England, about 1844, with a few laborers desirous of
saving themselves from the high prices paid for poor provisions.
By uniting, they purchased tea by the chest, sugar by the
hogshead, which they sold to each member at market prices. They
were surprised to find a large profit by the operation, which they
divided proportionally to the capital subscribed. Others soon
joined them; they took a store-room, and in 1882 there were 10,894
members, with a share capital of $1,576,215, and with realized
profits in that year of $162,885. They have erected expensive
steam flour-mills, and the society occupies eighteen branch
establishments in Rochdale. Libraries containing more than 15,000
volumes, and classes in science, language, and the technical arts,
attended by 500 students, have been maintained. The extension of
the Rochdale store led to the necessity of a wholesale
establishment of their own. It is now a large institution with
branches in London and Newcastle. “It owns manufactories in
London, Manchester, Newcastle, Leicester, Durham, and Crumpsall;
and it has depots in Cork, Limerick, Kilmallock, Waterford,
Tipperary, Tralee, and Armagh, for the purchase of butter,
potatoes, and eggs. It has buyers in New York and Copenhagen, and
it owns two steamships. It has a banking department with a
turn-over of more than £12,000,000 annually.”(317)

The following figures for England and Wales tell their own story
as to the progress of co-operation:(318)

1862. 1881.
Number of members 90,000 525,000
Capital: Share 428,000 5,881,000
Capital: Loan 55,000 1,267,000
Sales 2,333,000 20,901,000
Net profit 165,000 1,617,000

Several persons each subscribe a sum to make up the share capital
of a store, and a person is selected to take charge of the
purchase and care of the goods. The advantages of the plan are:
(1) A division among the co-operators of all the net profits of
the retail trade; (2) a saving in advertisements, since members
are always purchasers without solicitation; (3) no loss by bad
debts, since only cash sales are permitted; and (4) security
against fraud as to the character of the goods, because there is
no inducement to make gains by adulterations. It is often found
that the capital is turned over ten times in the course of a year;
while the cost of management in the wholesale Rochdale stores does
not amount to one per cent on the returns.

The arrangement of obligations in due order of their priority,
which has been recommended by Mr. Holyoake,(319) is as follows: of
funds in the store, payment should be made, (1) of the expenses of
management; (2) of interest due on all loans; (3) of an amount
equivalent to ten per cent of the value of the fixed stock to
cover the annual depreciation from wear and tear; (4) of dividends
on the subscribed capital of the members;(320) (5) of such a sum
as may be necessary for an extension of the business; (6) of two
and a half per cent of the remaining profit, after all the above
items are provided for, for educational purposes; (7) of the
residue, and that only, among all the persons employed, and
members of the store, in proportion to the amount of their wages,
or of their respective purchases during the quarter.(321) The
payment of dividends to customers on their purchases seems now to
be considered an essential element of success.

§ 5. Productive Co-Operation.

Productive co-operation presents many serious difficulties, the
chief of which is the need of managing ability. Some one in the
association must know the wholesale markets well, the expectation
of crops connected with his materials used, the proper time to
buy; he must know the processes of the special production
thoroughly, the best machinery, the best adaptation of labor to
the given end; he must know the whims of purchasers, and be ready
to change his products accordingly—in short, a man eminently
fitted for success in his own factory is essential to the
profitable management of one belonging to a body of co-operators.
It has been already seen how large a variation in profit is due to
manager’s wages; and it is very often only his skill, prudence,
and experience that make the difference between a failure and a
success in business. Unless co-operators are willing to pay as
large a sum for the services of a good manager as he could get in
his own establishment, they can not secure the talent which will
make their venture succeed.(322)

In France the national workshops of Louis Blanc, established in
1848, were a failure. Nowhere has it been more clearly seen that
state help has been disastrous than in France, where the
Constituent Assembly voted 3,000,000 francs for co-operative
experiments, all of which failed. Curiously enough, distributive
co-operation has not succeeded in France, because, owing to a
wide-spread dislike of the wages system, workmen will try nothing
less than productive schemes. And their success in this has been
no greater than might be expected, when inexperience is put to a
task beyond its powers.(323)

In Great Britain and the United States there have been some
successful experiments in production; and Mr. Holyoake(324) holds
that, although workmen certainly do begrudge the manager’s salary,
productive associations are possible when managed by a board of
elected directors. He urges, moreover, that, as in distributive
co-operation, if profits are shared with customers, there will be
insured both popularity and continuity of custom without the cost
of advertising, and such expenses as those of travelers and
commissions. The plan of actual operations upon which successes
have been reached in England seems to be briefly this: (1) To save
capital, chiefly through co-operative associations; (2) to
purchase or lease premises; (3) to engage managers, accountants,
and officers at the ordinary salaries which such men can command
in the market according to their ability; (4) to borrow capital on
the credit of the association; (5) to pay upon capital subscribed
by members the same rate of interest as that upon borrowed
capital; (6) to regard as profit only that which remains after
making payment for rent, materials, wages, all business outlays,
and interest on capital; and (7) to divide the profits according
to the salaries of all officers, wages of workmen, and purchases
of customers. Those mills and factories which have sprung out of
the extension of distributive associations, as at Rochdale, seem,
and naturally so, to have been most successful. They have
gradually trained themselves somewhat for the work, and their
customers were beforehand secured. That is, where the difficulties
of the manager’s function have been lessened, they have a better
chance of success. And yet it must be said that productive
associations will gain largely from the efficiency of the labor
when working for its own interest; and this is an important
consideration to be urged in favor of such associations.

The Sun Mill,(325) at Oldham, England, was established for
spinning cotton in 1861 by the exertions of some co-operative
bodies. Beginning with a share capital of $250,000, and a loan
capital of a like amount, it set 80,000 spindles in operation. In
1874 they had a share capital of $375,000 (all subscribed except
$1,000), and an equal amount of loan capital, while the whole
plant was estimated as worth $615,000. Two and a half per cent per
annum has been set apart for the depreciation in the value of the
mill, and seven and a half per cent for the machinery; so that in
the first ten years a total sum of $160,000 was set aside for
depreciation of the property. The profits have varied from two to
forty per cent; and, while only five per cent interest was paid on
the loan capital, large dividends were made on the share capital.
During the last few years the Sun Mill has on an average realized
a profit of 12-½ per cent, although it is known that the cotton
trade has suffered during this time from a serious depression.

Many experiments, however, have proved failures; and sometimes,
when they are successful (as in the case of the Hatters’
Association in Newark, New Jersey(326)), the workmen have no
desire to share their benefits with others, and practically form a
corporation by themselves. The mere fact that they do sometimes
succeed is an important thing. Then, too, they have an opportunity
of securing by salaries that executive ability in the community
which exists separate from the possession of capital. And in these
days, in large corporations, the manager is not necessarily
(although he often is) a large owner of capital. The last annual
report of the Co-operative Congress (1882) shows the existence in
England and Scotland of productive associations for the
manufacture of cloth, flannel, fustian, hosiery, quilts, worsted,
nails, watches, linen, and silk, as well as those for engineering,
printing, and quarrying; and these were but a few of them.(327)

In the United States there have been some successes as well as
failures. In January, 1872, a number of machinists and other
working-men organized in the town of Beaver Falls, Pennsylvania, a
Co-operative Foundry Association for the manufacture of stoves,
hollow-ware, and fine castings. On a small capital of only $4,000
they have steadily prospered, paid the market rate of wages, and
also paid annual dividends, over and above all expenses and
interest on the plant, of from twelve to fifteen per cent. In 1867
thirty workmen started a co-operative foundry in Somerset,
Massachusetts, with a capital of about $14,000. In the years
1874-1875 the company spent $5,400 for new flasks and patterns,
and yet showed a net gain of $11,914. In 1876 it had a capital of
$30,000, and a surplus fund of $28,924.(328)

§ 6. Industrial Partnership.

The difficulties of productive co-operation arising from the need
of skilled management, together with the existing unsatisfactory
relation between employers and laborers when wholly separate from
each other, have led to a most promising plan of industrial
partnership by which the manager retains the control of the
business operations, but shares his profits with the workmen. The
gain through increased efficiency, greater economy, and superior
workmanship, recoups the manager for the voluntary subtraction
from his share, and yet the laborers receive an additional share;
but more than this, it educates the laborer in industrial methods,
discloses the difficulties of management, and stimulates him to
saving habits and greater regularity of work. This system is
particularly adapted to reaching those laborers who would not
themselves rise to the demands of productive co-operation.

The principle was tried on one of the Belgian railways.
“Ninety-five kilogrammes of coke were consumed for every league of
distance run, but this was known to be more than necessary; but
how to remedy the evil was the problem. A bonus of 3-½_d._ on
every hectolitre of coke saved on this average of ninety-five to
the league was offered to the men concerned, and this trifling
bonus worked the miracle. The work was done equally well, or
better, with forty-eight kilogrammes of coke instead of
ninety-five; just one half, or nearly, saved by careful work, at
an expense of probably less than one tenth of the saving.”(329)

The experiment which has attracted most attention in the past has
been that of the Messrs. Briggs, at their collieries in Yorkshire,
England.(330) The relations between the owners and the laborers
were as bad as they could well be. “All coal-masters is devils,
and Briggs is the prince of devils,” ran the talk of the miners,
when they did not choose to send letters threatening to shoot the
owners. In 1865 Messrs. Briggs tried the plan of an industrial
partnership with their men, purely from business considerations.
Seventy per cent of the cost of raising coal consisted of wages,
and fully fifteen per cent of materials which were habitually
wasted. The whole property was valued, and divided into shares of
$50 each, of which the owners retained two thirds, together with
the control of the business. The remaining one third of the shares
was offered to the employés. If any subscriber was too poor to pay
$50 for a share, the subsequent dividends and payments were to be
applied to purchasing the share. After reserving a fair allowance
for expenses, like the redemption of capital, whenever the
remaining profits exceeded ten per cent on the capital, that
excess was to be divided into two equal parts, one of which was to
be distributed among all persons employed by the company in
proportion to their wages, and the other was to be retained by the
capital. In previous years but once had they made ten per cent
profit on their capital, and twice only five per cent. In the
first year after the new system came into operation, the total
profits were fourteen per cent, and the four per cent of excess
was divided, two to the laborers’ bonus, and two to the capital,
so that capital received twelve per cent. In the second year the
profits were sixteen per cent, in the third year seventeen per
cent; the first year the work-people received in addition to their
wages $9,000, in the second $13,500, in the third $15,750. The
moral effect was striking. Work was done regularly, forbearance
was exercised, habits improved, and the faces of the men were set
toward improvement in life. The scheme worked successfully for
years, but was finally ended by the pressure of the outside
trades-unions, who compelled the workmen to give up the
arrangement.

A similar experiment was tried by the Messrs. Brewster,
carriage-manufacturers, of New York. They offered to their workmen
ten per cent of their profits, before any allowance was made for
interest on the capital invested, or before any payment was made
for the services of the firm as managers. In one year as much as
$11,000 was divided among the laborers. Again, as in the case of
the Briggs colliery, the experiment was brought to an end by an
unreasoning submission to the pressure of outside workmen during a
strike.(331)

But, all in all, industrial partnership(332) offers a great field
for that kind of improvement which is worth more than a mere
increase of wages, and seems to make it possible to reach the
heavy weight of sluggishness among the lower and more hopeless
strata of society. And it is possible that it will stir in them
the powers which may afterward find employment in the harder
problems of productive co-operation.(333)

§ 7. People’s Banks.

In Germany the struggle between the two theories—self-help and
state-help—was fought out by Schultze-Delitsch—that is, Schultze
of Delitsch, a town in Saxony—and Lasalle, and the victory given
to the former. Schultze-Delitsch, as a consequence, was successful
in directing the co-operative principle in Germany to giving
workmen credit in purchasing tools, etc., when he had no security
but his character. This form of co-operation works to give the
energetic and industrious workmen a lever by which, through the
possession of credit, they can raise themselves to the position of
small capitalists, and thus widen the field of possible
improvement. While the former schemes of co-operation described
above have given the wages-receivers a share of the unearned
increment from land, and tend to give them a share of the
manager’s wages, the plan of Schultze was to assist them to gain a
share in the advantages belonging to the possession of capital.
The capital was to be accumulated by their own exertions, and, in
his scheme depended on the principle of self-help. The following
is the plan of banks adopted:

“Every member is obliged to make a certain weekly payment into the
common stock. As soon as it reaches a certain sum he is allowed to
raise a loan exceeding his share in the inverse ratio of the
amount of his deposit. For instance, after he has deposited one
dollar, he is allowed to borrow five or six; but, if he had
deposited twenty dollars, he is allowed only to borrow thirty. The
security he is compelled to offer is his own and that of two other
members of the association, who become jointly and severally
liable. He may have no assets whatever beyond the amount of his
deposits, nor may his guarantors; the bank relies simply on the
character of the three, and the two securities rely on the
character of their principal; and the remarkable fact is, that the
security has been found sufficient, that the interest of the men
in the institutions and the fear of the opinion of their fellows
has produced a display of honesty and punctuality such as perhaps
is not to be found in the history of any other banking
institutions. Such is the confidence inspired by these
institutions that they hold on deposit, or as loans from third
parties, an amount exceeding by more than three fourths the total
amount of their own capital. The monthly contributions of the
members may be as low as ten cents, but the amount which each
member is allowed to have in some banks is not more than seven or
eight dollars, in none more than three hundred dollars. He has a
right to borrow to the full amount of his deposit without giving
security; if he desires to borrow a larger sum, he must furnish
security in the manner we have described. The liability of the
members is unlimited. The plan of limiting the liability to the
amount of the capital deposited was tried at first, but it
inspired no confidence, and the enterprise did not succeed till
every member was made generally liable. Each member, on entering,
is obliged to pay a small fee, which goes toward forming or
maintaining a reserve fund, apart from the active capital. The
profits are derived from the interest paid by borrowers, which
amounts to from eight to ten per cent, which may not sound very
large in our ears, but in Germany is very high. Not over five per
cent is paid on capital borrowed from outsiders. All profits are
distributed in dividends among the members of the association, in
the proportion of the amount of their deposits—after the payment
of the expenses of management, of course—and the apportionment of
a certain percentage to the reserve-fund. Every member, as we have
said, has a right to borrow to the extent of his deposit without
security; but then, if he seeks to borrow more, whether he shall
obtain any loan, and, if so, how large a one, is decided by the
board of management, who are guided in making their decision just
as all bank officers are—by a consideration of the circumstances
of the bank as well as those of the borrower. All the affairs of
the association are discussed and decided in the last resort by a
general assembly composed of all the members.”(334) The main part
of the capital loaned by the banks is obtained from outside
sources on the credit of the associations. In 1865 there were 961
of these institutions in Germany; in 1877 there were 1,827, with
over 1,000,000 members, owning $40,000,000 of capital, with
$100,000,000 more on loan, and doing a business of
$550,000,000.(335)