Chapter XI: Foreword (11)

In 1909 in Belgium 458 banks, with a membership of 25,762, had outstanding (roughly calculated) $4,000,000 of loans; in France ninety-six regional banks did upward of $25,000,000 of business on a capital of $2,983,646, while the 2,983 local banks, with a membership of 133,382 farmers, had $2,622,241 of capital and a record of over $20,500,000 of operations. There were nearly 6,000 banks in Austria. The membership was over 725,666, and the loans ran over $86,500,000. In Italy 690 banks that furnished reports had a working capital of over $170,091,946. In Germany there is one bank for every 1,600 of the population, and the total business done was over $4,888,000,000. In one Province there is a bank for every 3,000 acres of land; and so on for all other nations that have coöperative credit institutions. The rate of interest charged was one or two points lower than in commercial circles, yet these banks, with a few exceptions, made a fair profit on the turnover of their capital. In some instances it ran as high as 5 per cent and 7 per cent.

With this striking array of figures to show its stability and usefulness, it is remarkable that the farmers of the United States have been so slow to adopt this system of banking for temporary loans on personal security. It has existed in Canada for twenty-two years. In the Province of Quebec there are a number of mutual banks that have loaned hundreds of thousands of dollars. But Massachusetts is the only State in our country that has made an attempt to encourage its introduction. It already has a law allowing the incorporation of credit unions. It was passed in 1909 after a careful study of European legislation, and furnishes an excellent example for the other States. The first concern to start under this law was the Myrick Credit Union at Springfield. In twelve months it had one hundred and five members, a capital of $3,000 and $10,000 of outstanding loans. Interest rates have been low, yet it paid over 6 per cent dividends on its capital. Thirteen new unions were formed in 1911 and have $25,000 of capital. A pamphlet issued by the State bank commissioner gives a comprehensive description of the fundamental principles that a mutual association for personal credit must adhere to. I cannot do better than to quote from it. They are as follows:

_First_: The association shall be organized on coöperative lines. As the members may be either borrowers or lenders, according to circumstances, its affairs must be conducted in such a way as to give fair and equitable treatment to both classes.

_Second_: The association shall be one of persons and not of shares. To this end each shareholder has one vote, irrespective of the number of shares he holds. Furthermore, a limit is set to the number of shares or the amount of deposit which a member may have in the association, in order that no one person may have a too dominating influence or be able to damage the association by suddenly withdrawing large sums.

_Third_: Loans shall be made only for the purposes which promise to result in a saving or a profit to the borrower. Each applicant for a loan must state the object for which he desires to borrow, in order that the credit committee, which passes on all loans, may rigidly exclude thriftless and improvident borrowing.

_Fourth_: As loans are made only to members and as any member may become a borrower, care must be taken to admit to membership only men and women of honesty and industry.

_Fifth_: As personal knowledge of the character of the members is essential, the membership in an association must be restricted to citizens of a small community, or of a small subdivision of a large city, or to a small group or organization of individuals.

_Sixth_: Every provision must be made to bring the association within the reach of the humblest citizen. The par value of the shares should be small (it averages about $5), and they should be payable in very small installments. Loans of very small amounts should be made and should be repayable by installments if desired.

_Seventh_: In making loans it should be recognized that character and industry are the basis of credit, and a loan may be made to a member who has not adequate security to pledge for it, provided he can obtain the guaranty of one or more other members, but no member is obliged to guarantee the loan of another member unless he desires to do so.

_Eighth_: Borrowers must carry out to the letter the conditions of repayment and agreed upon at the time their loans are made. Prompt payment of obligations is a fundamental requirement of these associations.

It should not be inferred from the great success and good accomplished that the coöperative credit associations could be taken as models in their entirety or that the establishment of such societies would act as an immediate panacea for all the troubles that beset agriculture in America. They seem to be adapted only for localities where the population is fixed and settled and welded together in close relation by community of interests.

Let me call your attention to what the Government report says in support of this position. The Germans have had their sad experiences and it would be the height of folly for us to travel over the same road again, only to learn by our own experience what we can now know without paying for it.

Too much emphasis cannot be laid on the fact that these small credit societies are not organized for making loans on real estate. The deposits and funds received by them are withdrawable on short notice. This privilege must be allowed in order to attract the capital needed. But as loans to members yield interest considerably under the ordinary market rate, the only way they have of paying for the use of this capital is by making quick and numerous turnovers with it. In Germany they have taken long-time mortgages, but the practice is strongly denounced by all students who have investigated into the cause of the remarkable success of the Raiffeisen and Schulze-Delitzsche systems as contrary to the theory on which they are founded. Credit is indispensable to every business. It is the means whereby $1 is made to do the work of $50, as the saying goes, but its classifications and limitations cannot be ignored without danger. A loan to acquire something merely for consumption is not tolerated, no matter what may be the security offered. The loan must be strictly for a creative purpose. This is the first cardinal principle, and so rigorously is it adhered to in Europe that the credit societies invite to their circle only those who are producers of wealth.

_Another principle is that personal and real credit are inherently and irreconcilably separate and distinct, and each must have specially adapted institutions for carrying on its operations. This is only a reaffirmation of what we have already decided over and over again._

The recognition and observance of these principles have done much to prevent thriftless debt among farmers, and are undoubtedly the reasons why the land credit is so thoroughly organized on the European Continent. A loan on chattel or character security should naturally be for a short time and for temporary purposes, for such security is perishable and subject to loss or change. The long-time loan requires an unchanging and permanent security, and the only thing possessing this quality is mother earth herself. But when capital is once sunk in land it becomes fixed and can never be recovered except from the income created thereby or the amortization sums paid in representation of that income. A debtor should not be called upon to pay back the loan in a lump or in advance of his receipts from the land. To do so leads only to further borrowing, usually on more burdensome terms, when the mortgage expires. On the other hand, a private individual cannot be expected to take his money back in driblets or wait long years for its complete return. So private lending on real estate is a theoretical and also a practical wrong. The proof of this lies in vast numbers of foreclosures and the excessive interest rates of farm mortgages in western United States, where they are largely held by persons. The smallness of the annual payments and the length of an ordinary loan in Europe are shown in the tables of the Crédit Foncier, which have been given already. A glance at them makes it apparent that amortization, the basic principle of a land loan, can be brought into full play only by the aid of large corporations or associations with charters perpetual or lasting a long time.

MR. BANKER: It does not seem to me, under the circumstances, as though we could treat the Mutual Credit Associations or Credit Unions wisely. Indeed, I am of the opinion that legislation by us would interfere with and retard the progress of such associations.

UNCLE SAM: Mr. Laboringman has waited patiently to have his say about coöperation.

MR. LABORINGMAN: Yes, I have been biding my time, for I have something to say that ought to interest all of you, as a possibility at least, and if it is reasonable to do so, I hope that you will include some sympathetic laws by way of encouragement.

England was the birthplace of modern industrialism, as you all know. There, too, was started the great movement of modern coöperation. Small and insignificant was the beginning. In 1844 the Rochdale pioneers put all their little savings into the pot, and they amounted to only $140. With this they started a store. By 1845 they had seventy-four members and $900 of capital, and did $3,500 worth of business, by keeping their little business open only two evenings a week. They were an object of derision and all sorts of jibes.

S.P. Orth describes the situation as follows: Last year the British Government made a careful and complete report on coöperation in England, and found more than three million persons in the membership of the various societies, and over three times that number under the immediate sphere of coöperative influence. That means that one person in every five in the United Kingdom is now interested or influenced by this vast association of producers and consumers. During the past ten years, the increase of membership has been 55 per cent and the trade 75 per cent.

The productive and distributive business alone amounts to $640,000,000. The retail societies have $200,000,000 of capital. "Last year the sales of these retail societies totaled more than $352,000,000, or about $142.50 per member." It is most significant that the societies, in their own mills and factories, produced nearly 50 per cent of these goods themselves; that is, production and distribution are going hand in hand. They began by making boots and butter; now they make cloth, iron and all sorts of things.

The average profits for the last ten years have been nearly 15 per cent and there is now a serious discussion whether the cost of articles to the customer should not be lowered.

In some of the districts, notably some of the mining districts, the coöperative stores have a virtual monopoly, and their system of banking or keeping the surplus credits for the customer is a great boon. But in other very poor districts, keeping up the prices has worked some hardship. It is now proposed by some of the stronger societies to open special stores in the poorer districts and cut the prices.

All business, until a few years ago, was done on a strictly cash basis, but recently the insidious credit system has crept in, and it may lead to serious consequences.

Last year, out of its surplus, the Union of Coöperative Societies, a federation of all English coöperativists, voted $230,000 to charity, $450,000 to education, i.e., libraries, lectures, and concerts, and $50,000 to propaganda.

The early retail societies found it hard to get good terms from wholesale houses, owing to the enmity of the private merchants. The law did not allow them to amalgamate and start a wholesale business of their own. But in 1862 the law was changed, and at once two coöperative wholesale societies were organized, the English and the Scotch. They are the models for the world. The two societies are virtually one, although maintaining different officers, rules, and stockholders. In fact, the wholesale societies are the federation of the retail and productive societies of England and Scotland. The English society requires the constituent societies to hold one $25 share for every five of its membership; the Scotch society one $5 share for every one of its members: i. e., an English coöperative shoe factory of two hundred members wishing to join the English Wholesale Society would take forty $25 shares, or two hundred $5 shares in the Scotch Society.

These Wholesale Societies are the grand Clearing House of nearly all the coöperative shops and factories of the kingdom, and the suppliers of all the coöperative retail stores.

And they are monumental institutions. In 1907 they had a membership of more than 2,615,000, a capital of more than $169,000,000, a surplus of $85,000,000. Their annual sales amount to more than $600,000,000, and their profits more than $60,000,000.

The English Society is the larger. It is a corporation that not only engages in wholesale trade but is a manufacturer, banker, importer; it packs meat, cures bacon, refines lard, binds books, grows tea, blends coffee, founders iron; it manufactures flour, butter, biscuit, sugar, pickles, cocoa, tobacco, candles, glycerine, starch, saddlery, furniture, clothing, corsets, underwear, brushes, crockery, tinplate, woolens, carpets and almost everything else that an average British home may need. It deals in coal, apricots, and wheat; has offices in New York, Toronto, Rouen, France; Denia, Spain; Copenhagen and Guthenberg, Sweden; has twenty-seven creameries in Ireland, tallow and oil works in Sydney, Australia; a "bacon factory" in Denmark, a tea plantation in Ceylon, and fruit farms in Shropshire and Hereford. Besides, it owns four steamers for the trade between Rouen and Manchester.

Its main offices on Balloon Street, Manchester, are enormous and palatial. Together with warehouses and stores, they cover a number of city blocks. Their offices in London compare favorably with any private establishment, and for efficiency they are second to none. Nearly 20,000 men are employed by this society. Some of its factories are large, e, g., the Leicester Shoe Works employ 1,446 men; the Irlam Soap Works, 702 men; Long Sight Printing Works, 941 men; the Middleton Pickle Works, 564, etc.

The chief offices of the Scotch Society are on Morrison Street, Glasgow. They manufacture umbrellas, tweeds, paislies, oatmeal, Aberdeen finnan-haddie, and other characteristic Scotch merchandise. Its capital is about $17,000,000.

Germany and Belgium, too, are furnishing successful coöperative associations. Mr. Orth describes them so well that I want to read what he says.

There are about two thousand of the coöperative supply societies among the farmers, with nearly one hundred and fifty thousand members. There are also about three thousand coöperative dairies, with two hundred and thirty thousand members, and one hundred and sixty coöperative wine cellars and two hundred and fifty-five coöperative warehouses and grain elevators.

It was natural that retail stores should be established next, on a coöperative basis. For some reason they did not thrive until about ten years ago. At that time a split occurred in the coöperative ranks, due to politics, and two federations or unions of Coöperative Societies were organized; the General Union or Liberal Union, and the Central Union or Socialist Union. The former is remaining stationary, the latter growing by leaps and bounds.

In every large city the coöperative retail society has a central plant. It usually includes a warehouse and bakery. The one located at Berlin is a good type. It is situated at Lichtenberg, a suburb. Here you see splendid buildings, in good architectural style, fitted up in the most modern manner; telephones to all departments, electricity, central heating plant, a uniform clock system for keeping time, etc. The whole plant cost $1,750,000. The great warehouse is full of groceries.

Although only a year in the buildings, they are already overtaxed and additions are planned. This central supply house looks after the sixty coöperative grocery stores in Berlin. It has a string of fine delivery autos. Any one can become a member by paying fifty pfennigs (12-1/2c.) admission, and forty marks ($10) a year. This, however, is taken out of his dividends.

The society also owns a fine row of apartment houses, which are leased to members at a low rental. The goods used are bought in the open market, or are supplied by the German Coöperative Wholesale Society of Hamburg. There is very little productive coöperation in Germany. There are 2,311 retail societies, more than two million members, and more than $5,000,000 in their reserve fund.

The Wholesale Society had a hard time of it until the spurt in favor of coöperation began a decade ago. Now it thrives, doing about $12,000,000 business a year.

There are a great many local coöperative building societies, with two hundred thousand members, and many other evidences that the spirit of coöperation is abroad in the land. In 1908 there were 4,105,594 persons actively interested in one form or another of German coöperation. In 1911 the number had increased to nearly five million.

In the little land of Belgium coöperation is at its best; not at its greatest showiness, nor maximum figures. But here, in this land of congested population, of illiteracy, of low wages and depressing conditions, the abject workingmen have taken hold of their own problems, asking neither sympathy nor favor, and have worked out a scheme of industrial coöperation that is a genuine achievement.

In 1873 bread was very dear in Ghent. Times were very hard. So high was the price of flour that many workingmen went hungry. A few of these workers united to do what they could to supply loaves at cheaper rates. They had $17 capital. They found an old cellar with an old oven in it, hired an old baker, and peddled the bread in baskets. Today there is a fine workingmen's clubhouse in Ghent, called "Vooruit." Across the façade stands the motto, "The Brotherhood of Workingmen Means Peace on Earth." This is the outgrowth of the cellar bakeshop. "Vooruit" stands for everything that is superb in coöperation. Here is not only a large lecture hall and café and offices of the unions; here is the studio of Van Biesbroeck, the workman-sculptor; here is a library, and in the neighborhood are stores, ware-rooms and shops. A few years ago it was found that many women were ruining their health by the long hours of service at the looms. "Vooruit" started a coöperative weaving shed, where the women work eight and three-quarter hours a day.

The bakery now does almost $1,000,000 worth of business a year; it makes 110,000 loaves a week. The eight thousand members of "Vooruit" have six drug stores, coal yards, many grocery stores and meat shops, a dry goods store, and other industries. All done by workmen in thirty years, workmen who were never highly paid and who trained themselves to do these things.

They meet every year, the eight thousand members, and vote on the price of bread. Sometimes it is one cent higher than the commercial rate, but their dividends more than cover this.

In Brussels is the famous "Maison du Peuple," the House of the People. It, too, began with a small bakery, employing two men and turning out five hundred and fifty-two loaves the first week. Today the "Maison" has twenty-five thousand members, two great bakeries, six warehouses, four butcher shops, twenty-five grocery stores, and numerous shops where various articles are made.

This "House," standing on Rue Joseph Stephen, cost $375,000 and was paid for by the Brussels workingmen out of their coöperative funds. The café, seating eight hundred people, is an animated place; every one seems content. The office of the savings bank is doing a rushing business, women and children bringing in the savings of the family for the week; the committee rooms are full of workmen planning some new enterprise. In the evening the lecture hall or theatre is crowded, the two thousand five hundred seats all taken, to see a play produced by an amateur company, all members of the "Maison."

All this, and more, in the form of coöperation. In 1907-8 the "Maison" made a profit of $134,000; of this about three-quarters was distributed as personal dividends to shareholders. The rest was spent on social benefits and a reserve fund.

In Belgium, then, you find all the coöperative activities united in each city under one general management. It includes groceries and clothing, medical aid, insurance, savings bank, clubhouse privileges, lectures, libraries, entertainments.

There are one hundred, and sixty-one distributive societies with 119,581 members; sixteen productive societies with 1,583 members. The Productive Societies include weaving, printing, cabinetmaking, tobacco and cigars, hardware and bakery. The total coöperative business is $6,800,000 a year, a large amount when you consider the diminutive size of the country and the poverty of the people.

The fact that in all of these countries coöperation is growing at a rate of increase of 20 per cent to 40 per cent proves that a need for it exists.

Now, Uncle Sam, we are starting these coöperative stores here, and the question with us and the one we are constantly asking, is what protection are we going to have from the trusts and monopolies which can, if permitted to do so, destroy us with low prices at any point, while they rob the people at some other point, to make up the losses, while ruining us. What we must have is legislation, to protect us, and if we can get it into this bill, I want it.

UNCLE SAM: I do not see how any phase of what you have said can be governed by a financial and banking bill. It is true, that incidentally you may do a banking business in your coöperative societies. So far as you do, you ought to conform your practices with whatever we may decide upon in the way of banking laws. So far as you buy and sell, or manufacture, you are engaged in production and commerce, and not in the banking business. Under the circumstances, you are entitled to an answer, although a little aside from the subject in hand. Let me tell you, however, right here, and you may set it down as settled. That, if you start any coöperative associations for the production or distribution of goods of any kind, you shall have a square deal. I have been waiting patiently, but getting ready all the while, to put some of the managers of these monopolies in jail. You can take my word for it. You are going to have equal opportunities under the operation of just laws, if there is any way of giving them to you. And if your Uncle Samuel understands the situation, I think there is. Unfair chances, special privileges and monopolies cannot naturally and properly have any place in a country where all men are born free and equal under the law. The fact is, the law is sufficient now, but there is not a public sentiment strong enough to compel the courts to put men in jail for robbing their fellows through the forms of law; even if it is known that the laws by which they rob their fellows or are permitted or enabled to rob their fellows were passed expressly for that purpose. That is the fault of the times through which we have just passed. The time is now at hand when all this is to be reversed. The people have come to realize and appreciate the fact that it is ethically, morally, and justly speaking, as wrong to rob a man through the forms of law, as for the bully to fell a man in the streets and pick his pockets. The people are forming new ideals, and the judges are getting new ideas. These new ideals, and these new ideas, will soon handcuff and incarcerate the business culprits, the business bullies, just as the ancient ideals of the people, and the old ideas of the judges have, in the past, put the physical bully and the material thief in the dark, dank dungeon. I have altogether too many men, who are always inquiring how near they can go to the jail door and not get in. You mark my word, I am going to push some of them in very soon now. What I want is a nation of men who are imbued with a sense of justice and fair play in business; and who will regard business relations as moral obligations, and paramount to the technical letter of the law. When that day comes, one banker will not want his fellow-bankers to carry his reserves for him. The principle is the same, whatever the relation of men may be; therefore, you can take my word for it, that all those who want to coöperate to secure a greater degree of the profits of their labor, a greater degree of justice among their fellows, will find Uncle Samuel coöperating with them, in the preparation and execution of those laws which will make for a juster Government. Since this Government springs from the people, and belongs to the people, no part of the people, certainly no small part of the people, should be able to take unfair advantages and undue profits, by any legalized special privileges, or by the power of monopoly. I say to you now, that these should be, and will be destroyed, and that all men shall be equal before and under the law. This is the predestined purpose of this Government, and it will never come into its fulfillment until you learn, my boys, that you are your brother's keepers.

MR. MERCHANT: Uncle Sam, that's pretty good preaching; but how are you going to apply it to this banking question?

UNCLE SAM: Did not Mr. Laboringman just appeal to me to find out whether coöperative societies were going to have a fair show? I have just told him "Yes," and I intend they shall have it, and I know of no better place to begin than here and now. I am going to construct two or three pieces of machinery--a guillotine for the monopolies, and an electric chair for special privileges, and concoct a barrel of anesthetics for stealthy, statutory stealing.

MR. LAWYER: But all this kind of legislation must come under the sphere of the Sherman Anti-Trust Law. I think no one will contend that any aspect of coöperation, as represented by Mr. Laboringman, should be incorporated in our banking bill.

MR. BANKER: I agree with both Mr. Farmer and Mr. Lawyer, that we cannot make any provision for it at this stage of its development in this country; but who shall prophesy about a movement that has spread over the world, as this has, and is now growing at such a rapid rate? It is estimated that at least ten million in Great Britain are interested in it; more than five million in Germany, and that the outstanding coöperative investments in Continental Europe must exceed $5,000,000,000 by this time. Of course, these figures mean some banking sooner or later, in this country, when the movement once gets under way.

MR. FARMER: Yes, I agree to that, but any attempt on our part at this time to legislate in advance, would do more harm than good.

MR. LABORINGMAN: That is probably true, as it might interfere, as you say, with the movement. All I ask then, is that we have a fair field, so that we can develop along natural lines, and be protected in the exercise of our mutual coöperative rights. I thank you, gentlemen, for giving me, and my particular cause, so much of your time.

UNCLE SAM: Mr. Laboringman, your cause is their cause. Your cause is my cause. Your cause is our cause. Your cause is the cause of humanity. The principles upon which your cause rests, pushed to their logical conclusion, will secure social and industrial justice. There are many who have taken millions, yes, hundreds of millions, through the forms of law, but without any ethical right whatever. From them these millions will be taken away in time, through the forms of law; through the power of taxation by progressive income and inheritance taxes, and the injustice of today will be righted by the justice of tomorrow.

MR. BANKER: Uncle Sam, you have suggested a programme outside of banking legislation; but I must confess incidental to the cause presented by Mr. Laboringman.

MR. FARMER: Gentlemen, we have stayed longer tonight than on any previous night, and I must go now. So, good night.

UNCLE SAM: Mr. Farmer has forced an adjournment.

THIRTEENTH NIGHT

THE CLEARING HOUSE

UNCLE SAM: We are on the very last lap tonight, as I understand the situation. We have had the Standard of Value, Money, Currency, Exchange, Value, Price, Property, Wealth, Credit, Reserves, the Bank; and now comes the settlement of the claims against the bank in the shape of checks, drafts and bills of exchange.

When we finish this conversation we can, I hope, begin to put things together, that is, make use of our material.

MR. BANKER: Uncle Sam is right, we shall be ready to do some constructing when we have disposed of the Clearing House, which is destined to play a gigantic part in the future of American banking. This is true because the Clearing House is bound to become the machinery by which all American banks are to coöperate and protect themselves through their combined strength; and it will be a splendid exhibition of what true coöperation can accomplish.

The character and origin then of the Clearing House, its present and prospective function, must be carefully studied by us, if this assumption is correct.

MR. MERCHANT: The character of the Clearing House, or the principle upon which it works, is simple enough; although its operations are vast, and its achievements in times of financial stress have been most striking, even though not always satisfactory.

The principle of clearing is, as I have just said, simple indeed. If I have a claim against Mr. Manufacturer, and he has an equal claim against me, we clear them by exchanging our claims with each other. If one of you gentlemen should sue another for one hundred dollars, and the other should make a defense by pleading an offset of one hundred dollars, and the court should allow both claims, you would clear them through the court, the one offsetting the other; that is all there is of the principal involved.

MR. BANKER: Mr. Merchant, you have put this matter more simply than any book has ever done. Indeed, I had not reduced the transaction to such simple terms. To put it in the form of a definition, as you stated, it would read this way: "To offset one claim against another, and pay the balance, if any, is clearing them."

I had thought that it would be my particular task to explain this transaction of clearing, and after a good deal of meditation I had worked out a thought which I am sure is next best, after your definition; and it will take us one step nearer to the Clearing House, without getting into any of its complexities. My illustration is this: if there were but one bank in a town, and all the people did their business through this single bank, by depositing their money and checks, and then paid all their bills, with checks on the bank, apart from any outside business, every debt in the town would be paid by check, and there would be no need of any money at all as the claims and debts would be exactly equal, and would always cancel each other to a cent.

MR. LAWYER: What you have said about one bank in a town is equally true of two, three or four, or any number of banks, if you assume that every person in town does his entire business through the banks, providing, of course, that the banks get together, and offset all the checks and drafts they receive during the day. There might be something to pay from day to day for the time being, but all would be adjusted in the end, without any variation or difference.

MR. BANKER: Precisely so, but when you get those bankers together, for the purpose of trading checks, you have created a Clearing House.

Stephen Colwell says: "Clearing is beyond all question, the simplest, the most economical, and when applicable, the most efficient of all modes of paying debts; it is precisely analogous to balancing accounts."

James G. Cannon, author of the leading work upon the history of American Clearing Houses, describes a Clearing House "as an office, established by the banks of a city, where their representatives meet daily to exchange drafts and checks, and adjust balances." Again, "as a device to simplify and facilitate the daily exchanges of items, checks, drafts and bills of exchange, and the settlement of balances among the banks, and a medium for muted action upon all questions affecting their mutual welfare."

You would think that the Clearing House was such a simple matter, and such a great advantage that a Clearing House would have been thought of, and put into operation as soon as banks got under way, but not so. Their development and establishment, as we know them today, has been slow indeed, and the early history of their origin most interesting.

Jevons says: "About the year 1775, a few of the London bankers hired a room where their clerks could meet to exchange notes and bills, and settle their mutual debts. The society was of the nature of a strictly private club; the public knowing nothing about it, and the transactions being conducted in perfect secrecy. Mr. Gilbart tells us that even in this form it was regarded as a questionable innovation, and some of the principal bankers refused to have anything to do with it. By degrees, however, the convenience of the arrangement made itself apparent, more bankers were admitted to the Society, and a distinct committee and set of rules were formed for its management. Although it remains to the present day a private and voluntary association, unchartered, and in fact unknown to the law, the Clearing House has steadily grown in importance, and in the publicity of its proceedings.

"Several important extensions of the clearing work have been made in the last twenty-five years. After the rise of the London joint stock banks, subsequent to 1833, they were for a long time refused admittance to the Clearing House; but in June, 1854, they were at last allowed to join the Association. The Bank of England long remained entirely outside of the confederation, but more recently, it has become a member." (Written in 1875.)

The establishment of Clearing Houses in English cities, outside of London, did not take place until a century, almost, after that in London went into operation, or as late as 1872, which was just five years short of a century later.

As early as 1831 Albert Gallatin presented a plan for a Clearing House in New York, and so perfectly outlined the scheme, finally adopted, that I want to read it to you. And I want to impress upon you the fact that Gallatin was one of the very ablest economists that we have ever produced.

"There is a measure which though belonging to the administration of banks, rather than to legal enactment, is suggested on account of its great importance. Few regulations would be more useful in preventing dangerous expansion of discounts and issues on the part of the city banks, than a regular exchange of notes and checks, and an actual daily or semi-weekly payment of the balances. It must be recollected that it is by this process alone that a bank of the United States has ever acted or been supposed to act as a regulator of the currency. Its action would not in that respect be wanted in any city, the banks of which would, by adopting the process, regulate themselves. It is one of the principal ingredients of the system of the banks of Scotland. The bankers of London, by the daily exchange of drafts at the Clearing House, reduce the ultimate balance to a very small sum; and that balance is immediately paid in notes of the Bank of England. The want of a similar arrangement among the banks of this city produces relaxation, favors improper expansion, and is attended with serious inconvenience. The principal difficulty in the way of an arrangement for that purpose is the want of a common medium other than specie for effecting the payment of balances. Those are daily fluctuating; and a perpetual drawing and redrawing of specie from and into the banks is unpopular and inconvenient.

"In order to remedy this it has been suggested that a general cash office might be established, in which each bank should place a sum in specie, proportionate to its capital, which would be carried to its credit in the books of the office. Each bank would be daily debited, or credited, in those books for the balance of its account with all the other banks. Each bank might, at any time, draw for specie on the office for the excess of its credit, beyond its quota; and each bank should be obliged to replenish its quota whenever it was diminished one half, or in any other proportion agreed on. It may be that some similar arrangement might be made in every other county, or larger convenient district of the State. It would not be necessary to establish then a general cash office. Each of the banks of Scotland has an agent at Edinburgh, and the balances are there settled twice a week, and paid generally by drafts on London. In the same manner the balances due by the banks in each district might be paid by draft on New York, or any other place agreed on."

James C. Hallock, the highest authority in this country upon Clearing House operations, has so succinctly stated how the checks were disposed of, before the Clearing House was established, that I am going to read that to you, and show you two diagrams, which we will keep on file for future reference. "In 1853, the Banks of New York City organized a Clearing House, the first in America; until then they had done business without one. The method had been laborious.

"Each of the fifty-two banks had daily received over its counter, or by mail, checks on every other bank in town. To collect them the banks had opened deposit accounts with one another. Each had become a depositor in fifty-one city banks. Each also had had the others as depositors and kept fifty-one accounts with them. The pass books used had been of the ordinary form as 'Merchants' Bank, in account with Chatham Bank.'

"According to the common usage of depositors, each bank would have sent messengers to fifty-one banks daily, and each would have had fifty-one messengers come to its own counter from the other banks. They had done a little better than that. The Chatham Bank, for instance, would have checks on the Merchants' Bank. It would list them on a deposit slip, charge the Merchants' Bank with the amount in its pass book, and place the checks in the book which the messenger would now carry to the Merchants' Bank, and deliver to its Receiving Teller. The latter would remove the checks, and having some on the Chatham Bank with list attached, he would credit his bank with the amount in the pass book, place the package in it and hand it back, thus refilled to the messenger.

"This exchange of checks by two banks at the counter of one was a rudimentary clearing which, like all bank clearings, saved labor, time and trouble. To deposit these checks in the customary manner would have required two messengers and two pass books. By this clearing arrangement one messenger and one pass book sufficed. Perceiving the sensibleness of this saving, the New York banks had for many years tacitly agreed that each should send messengers to one-half of the banks for six months, and the other half for the next six months. They had thus reduced the number of banks to be visited daily by each from fifty-one to twenty-six banks, and accordingly reduced the number of pass books in use by each.

"The accompanying diagram representing the banks arranged in a circle, with two of them sending messages to twenty-six each, indicates how toilsome the exchange of checks still was, up to the formation of the New York Clearing House, which commenced operations on Oct. 11, 1853; though only two banks are represented as sending, in fact, all were really sending, or being sent to; for every bank sent to all others that did not send to it.

_Diagram showing a Bank Messenger's 26 Trips to Exchange Checks with other Banks._]

"When two banks exchanged checks the amounts were almost always unequal, leaving a balance for one to pay and the other to receive. Every day every bank, if they had settled daily, would have had fifty-one balances to pay, or receive. They were payable in coin. Instead of attempting the daily adjustment of accounts, which would have consumed hours, and caused much annoyance, it had become a tacit agreement that a weekly settlement of balances should be made after the exchange of Friday morning. On settlement day, the cashier of each bank would draw checks for every debt due to him by other banks, and send out the messengers to collect them. Over fifty porters were out all at once, wrote a bank officer of the time, with an aggregate of several hundred bank drafts in their pockets, balking each other, drawing specie at some places, and depositing it in others, and the whole process was one of confusion, disputes and unavoidable blunders of which no description could give an exact impression.

"The second diagram, representing the fifty-two banks in a circle around the Clearing House, indicates how completely all this misdirection and waste of energy stopped upon the installation of that marvelous method which affects such amazing economy. Every bank now sends straight to a common point. Every bank sends there all the checks it has on all the city banks, and charges the whole amount against an imaginary debtor--the Clearing House. Every bank receives there all the checks all the other city banks have on it, and admits its indebtedness for the whole amount to an imaginary creditor--the Clearing House. The balance can now be struck. If the bank loses, it pays the Clearing House the difference. If the bank gains, the Clearing House pays the bank; and there is the end of it, reached by the shortest path with the greatest ease and quickness.

"The principal results may be summarized:

"The Clearing House saved every bank in New York City on the average twenty-six trips daily to exchange checks with other banks. It abolished sending to other banks for this purpose. It substituted one trip to the Clearing House--an economy of 96-1/2 per cent.

"The Clearing House saved every bank in New York the payment or receipt, mostly in coin, of fifty balances on settlement day (Friday). It abolished settling at the counter of banks, except for checks, sent through the clearing and returned 'not good.' It substituted one payment, or receipt, of a net balance to or from the Clearing House, an economy of 98 per cent.

_Diagram showing Single Trips to Exchange Checks with all other Banks in the City._]

"The Clearing House saved the banks of New York all the drudgery, irritation and anxiety which had made daily settlements impracticable. It abolished the weekly settlement; it substituted daily settlements to the Clearing House--an economy of considerable importance.

"The Clearing House saved all the banks of New York the trouble of keeping accounts with one another. It abolished accounts of city banks with city banks--closed 2,652 accounts. It substituted one account for each bank with the Clearing House--an economy of 98 per cent.

"These savings, not to mention others, proved beyond dispute, that clearing checks economizes."

It was twenty-two years before Gallatin's suggestion was adopted, and a Clearing House was established, which, as stated, was in 1853. The first clearing was effected on Oct. 11, 1853, and amounted to $22,648,109.87. The balances amounted to $1,290,522.28.

Boston followed in the footsteps of New York, and established a Clearing House in 1856, and Philadelphia in 1858.

The next step in the line of progress, in the matter of bank clearings, came, as Hallock says, as a result of cheap postage and the railroads in England, and included country checks.

He says: "Somewhat less than half a century ago London recognized the fact that the out-of-town check was an indispensable instrument of civilized man, at least in Great Britain. He would use it, contrary to custom, and despite the remonstrances of city bankers, who thought only London drafts should be sent to London.

"A product of modern times and method, country checks came to London with the railroads. Few at first, when the average postage on a letter consisting of a single sheet, was nine pence, and another sheet, or any enclosure, however small, doubled the rate, making the postage on a letter enclosing a check thirty-six cents, on the average. With penny postage established in 1840, regulating the rate on a letter by its weight (one penny per half ounce), without regard to the number of sheets, or enclosures, country checks began to stream into London.

"In 1858 the city bankers, perceiving their inability to suppress, or exclude them, decided to adopt the suggestion of some country bankers, and collect English and Welsh checks through the Clearing House.

"The idea originated in the spring of 1858 with a young country banker, William Gillett, the son and grandson of country bankers. He visited the provincial banks, and interested them in the project. When prepared to carry it out the country bankers met in London on Sept. 29th of that year, and communicated the plan to the London clearing banks to obtain their support. The Londoners opposed it; they suggested doubt as to the utility and feasibility of any change in existing systems. However, their coöperation being solicited, the London bankers held a meeting at the Clearing House on Oct. 12th, to take the matter into consideration, and appointed a special committee to confer with the country bankers.

"Then, on reflection, it appeared to another young man, the son and grandson of clearing bankers, that the organization of a large and entirely new establishment, which the country bankers proposed, was unnecessary, as the London bankers could give them all the facilities they required, without any great additional labor, or expense. This junior officer in the private bank of which his father was the head, has since gained world-wide celebrity in science and literature as Sir John Lubbock (now Lord Avebury). Even with the aid of such talent and opportunities as his, it required unflinching resolution to establish country clearing in London. After devising a method that conformed as closely as practicable to actual usage in clearing city banks, young Lubbock had to call at every London bank, at most of them several times, and explain fully the exact manner in which he proposed to carry out the system. It was very difficult for him to convince his brother bankers. Finally the special committee requested him to meet the principal clerks of the different banks. These clerks unanimously recommended the adoption of his plan.

"The London bankers then adopted it, and on Nov. 16th submitted it to their country correspondents. The plan for an independent country Clearing House was abandoned by the country Bankers' Committee on Nov. 19th, and the clearing of country checks commenced in London on Nov. 23, 1858. In less than eight weeks, after the idea was broached in London, it was put in practice there."

This system covers 60,000 square miles.

Mr. Hallock says, "Sedalia bankers unconsciously imitated the London plan, but modified it, as had been done abroad elsewhere; for out-of-town checks are cleared, not only in London, but also in other English cities, as Manchester, Liverpool, Birmingham, Newcastle-on-Tyne, Leeds, Sheffield and Bradford, in some eight Scotch towns and Dublin."

The next advance, which is undoubtedly destined to revolutionize clearing in the United States, was started in Boston in 1899 by making New England a free check zone.

Hallock says: "The clearing of out-of-town checks, though opposed for years by a small minority of Boston banks, was successfully established at Boston in 1899. The system includes checks on all points in New England, and maintains a free zone of nearly equal extent.

"Proposed in 1877 and 1883, the Boston movement at first resulted in a deadlock, based on the supposed importance of having certain city banks, who declined to come in, participate. After twenty-two years through another movement started among the Connecticut banks, the deadlock was broken by substituting the manager of the Boston Clearing House for any abstaining members, and giving him checks on their correspondents to collect. The association finally decided that all checks passed through the out-of-town clearing should be collected by him.

"The only opposition exhibited by country banks has been in the refusal of a few to pay the Clearing House in full for their checks, deducting so-called exchange. Boston checks passed through the Clearing House are paid in full, or not at all. New England checks should be. This can be effected, either as in London, by Boston banks returning checks, drawn on such banks, as not collectible through the Boston Clearing House, or by the manager, charging to collect checks, bearing indorsement of the non-par banks, which would cut them off from the use of the New England free list, now enjoyed by them, without reciprocity; that is, without being themselves on the free list."

Mr. Charles A. Ruggles, manager of the Boston Clearing House, says: "In the thirteen years that we have made collections in this way, we have collected over eight thousand million dollars ($8,000,000,000).

"Our cost now is, and has been for ten years, seven cents for a thousand dollars. That includes the clerk hire of fifteen men, postage and stationery, and we collect seven or eight hundred million dollars a year; furthermore, 90 per cent of the banks in New England remit at par. We collect 95 per cent of it in twenty-eight hours."

It is an interesting and important historical fact that the country banks of England and Wales forced the clearing of country checks at London; so, too, the banks of Connecticut, thirty of them in number, by combining under the advice and leadership of Mr. James C. Hallock, succeeded in having the plan adopted by the Boston Clearing House. As a result New England became a free check zone. I think we should note in this connection that the father of Mr. James C. Hallock was the organizer, if not, indeed, the originator of the New York Clearing House in 1853.

MR. LABORINGMAN: Mr. Lawyer, you talk and talk and talk, when you could say what you really have to say, in one-tenth of the time, and in about as many words. We have spent a whole hour in the history of the origin of the Clearing House, and have just learned what I could repeat in about two minutes.

_First_: London, in a kind of a sneaking way, began to clear checks in 1775, and kept a Clearing House in a blind alley. Nothing more was done in England by way of advance until 1858, when the country banks of England and Wales, covering a territory of 60,000 square miles, by threatening to start their own Clearing House in London, compelled the London banks to clear their checks. Not till 1872, nearly one hundred years later, did any other city adopt it. But today many cities in Great Britain are clearing country checks.

_Second_: Gallatin proposed a Clearing House for New York in 1831. Hallock established it in 1853. Boston and Philadelphia followed in three and five years, respectively. In 1899, New England became a free check zone, all checks being received at par at Boston. Since then several other cities have followed suit. Atlanta, Macon, Nashville, Sedalia and Kansas City. Now, I have said everything you said. Next!

UNCLE SAM: Mr. Laboringman always gets a "B" line on things.

MR. LAWYER: That is true in substance, but the very fact that Mr. Laboringman has stated the case so well is the greatest compliment he could pay us. It is only by iteration and reiteration, word upon word, and precept upon precept, that has made this whole subject so plain to all of us. We have made haste by going slowly, and we don't want to get into a hurry now.

MR. BANKER: I agree with you, Mr. Lawyer, patience has been our best and truest friend in all these talks, and we should not desert her now.

MR. LABORINGMAN: That's all right, but let us get down, right down to business. Just where are we at now? And where are we going to in the Clearing House matter?