Mutual Service – Chapter 7
COOPERATIVE ORGANIZATIONS IN THE EUROPEAN COUNTRIES
Cooperative organizations are now operating in fifty-one countries of the world and have
a membership of 50,000,000. One membership to each family means 50,000,000 families
are benefiting by it. Counting four to the family, means 200,000,000 people are associated
with it. This number is equal to the population of England, France, Germany
and Italy, and even that vast number of people do not represent all who believe in the
principle. There are millions not associated with cooperatives who believe in them.
It seems best at this point to give the reader a brief historical statement of the cooperative
movement, along with some statistical facts about this movement in numerous
countries where it has been established. In presenting these data, the report of the
United States Federal Trade Commission will be used. This body was sent into Europe
in 1923 to investigate cooperation in foreign countries and the report was made November,
1924.
Cooperation has long ago transcended national boundaries and become an organized
international movement and one of the great economic forces of the world. This is true
particularly of the cooperative consumers’ and cooperative credit movement, As an illustration
of the world-wide extent and solidarity of cooperative organization, it may be
pointed out that with one or two exceptions it is the only movement that has successfully
established an international holiday (July 5) typifying th-e cause it represents. At the
present time about 50,000,- 000 people are affiliated with cooperative societies which
are linked up with the International Cooperative Alliance. the central agency of the cooperative
movement throughout the world.
The International Cooperative Alliance was established in 1895 as an international union
embracing the cooperative unions and federations of many countries. It was
founded for the promotion of cooperative principles and practice on an international
scale. Its headquarters are at 4 Great Smith Street, Westminster, London.
The alliance comprises the representative cooperative movements of the following
countries: Great Britain, the Irish Free State, Denmark, Norway and Sweden, Germany,
Austria and HUngary, Holland, Switzerland, France, Belgium, Italy, Spain, Finland,
Esthonia, Latvia, Lithuania, Russia, the Ukraine. Poland, Czechoslovakia, Serbia, Bulgaria,
Rumania, Georgia, Armenia. Canada, the United States and Argentina. Eleven
international cooperative congresses have been held, the last one during the summer of
1924 at Ghent.
Consumers’ Cooperative Societies
The cooperative consumers’ or distributors’ society is organized from the standpoint of
the consumer, whom it endeavors to place in a position of economic independence, if
not domination. The movement originated in England. In 1844, twenty-eight poor weavers
in Rochdale, near Manchester, England, laid the basis of the modern cooperative
retail store on such practical principles that the consumers’ cooperative societies have
practically everywhere followed the Rochdale plan as their model. From its humble beginning
eighty years ago, the movement has grown until it now spans the world.
The leading principles of the Rochdale pioneers are as follows: (1) Goods are sold at
current market prices against cash payments. (2) Only sound, unadulterated goods of
full weight are sold. (3) Each member has only one vote at the general meetings. (4)
The surplus is disposed of as follows: Part of it is divided among the members in proportion
to their purchases; part is used for educational and altruistic purposes; a considerable
part is transferred to the reserve fund; and with capital not required for the management
of the business, factories, warehouses, etc., are erected. (5)
Shares are of the value of $5 each, usually payable in small installments. Interest at 5
per cent, and in most cases the dividends paid on trade are added to these installments
until the member holds the amount of fully paid up shares required by the rules. The
shares are of two kinds, transferrable and withdrawable. Transferable shares can only
be disposed of by transferring them to a person approved by the committee, whereas
the others can be withdrawn at will. Most societies make all but the first share held by a
member withdrawable. So it comes about that members use their societies practically
as savings banks by investing in shares when they have money to spare and withdrawing
them when they need money.
Cooperative societies emphasize the importance of providing pure, unadulterated foodstuffs
and other supplies to their members, and in line with this policy operate laboratories
and testing stations. Cooperative jam and preserve factories in the United Kingdom
have maintained the highest standards of purity, even erter the withdrawal of war-time
food regulations.
The foregoing democratic principles have been adopted by cooperative consumers’ societies
throughout the world, with of course such changes and adaptations to local or
national conditions as are necessary under the given circumstances. Liability, the right
to sell to nonmembers, the granting of a legal personality to a society, and other powers
vary in different countries depending on the statutory provisions governing cooperative
societies.
The retail consumers’ society is an association of consumers for the purpose of carrying
on organized retail distribution. The retail society generally operates one or more stores
for the sale of goods of everyday use. Some of the larger retail cooperative societies
haVIC established bakeries, slaughter houses, dairies, and other prod uctive departments
of their own. St. Cuthbert’s Society of Edinburgh, for example, operates one of
the largest bakeries in the United Kingdom. Wholesale production has, however, become
a special province of the wholesale cooperative society. In localities where there
is only one retail cooperative society, and that having a large membership, the opportunity
of dominating local retail prices is frequently taken advantage of by the cooperatives
in the interest of the consumer.
In order to obtain a stronger position as buyers, including the advantages of large quantity
purchases, and to become their own producers, retail consumers’ societies have
federated in most countries in the form of wholesale societies. The latter generally add
to their wholesale merchandising functions those of producers, and operate manufacturing
plants of various kinds. The cooperative wholesale societies of England, Germany.
Switzerland, and France have advanced farthest in this respect and some of their
manufacturing establishments rank among the largest and best in their particular
branch. The policy of extending such productive departments to cover the whole field of
supply has led some consumers’ societies to acquire agricultural enterprises (dairy and
truck farms), coal lands, tea plantations, etc. It is a principle of the consumers’ cooperative
system generally that the societies should produce only to satisfy the wants of their
members and only in the service of the consumer.
The wholesale societies are built up on the same principles as the retail societies. In
addition to establishing productive departments, they organize transport and forwarding
branches, banks, insurance departments, publicity bureaus, etc. The tendency is for the
wholesale society to become the distributive agency of the retail societies, just as the
latter are the distributive clearing house of its members.
Already initial steps have been taken to proceed a step further and organize central international
distributive agencies. The English and the Scottish wholesale societies
jointly manage tea plantations in the Far East; and the Danish, Swedish, and Norwegian
wholesale societies have united in the formation of an Interscandinavian Wholesale Society.
At the present time, a committee of representatives of all wholesale societies is
working out a scheme for an international organization, and the inter-societies of different
countries. change of goods among the various wholesale
Agricultural Cooperative Societies
There are various types of agricultural cooperative societies. One of the most numerous
is the supply society. Its function is to provide farm requisites of all kinds at a low price,
including feeding stuffs, seeds, fertilizer, fuel, twine, implements, and sundries. In some
cases the society imports a part of its stock of supplies. By means of collective buying
the farmers become independent of local dealers and are in a better position to protect
themselves against monopolistic combines in addition to having the advantage of large
quantity purchases.
A second type is the cooperative sale society for marketing farm produce. Butter and
egg selling societies are probably the most numerous of this class. Other products of
the farm handled in this way are milk, bacon, potatoes, hay, straw, wool, fruit, garden
produce, livestock, etc.
Farmers’ cooperative sale societies frequently operate warehouses and elevators. In
Germany, Czechoslovakia, and Sweden moderate sized establishments of this kind
have greatly facilitated the process of distributing and marketing farm products. In England
farmers’ cooperative auction sales have been established with considerable success.
In Denmark, Holland, Sweden, Finland, and Esthonia farm products are exported
in large quantities on a cooperative basis.
A third type of cooperative agricultural society is the productive society. It includes cooperative
dairies and creameries, which are very numerous in all the leading agricultural
districts of Europe, as well as cooperative distilleries, vintries, flour and grist mills,
sugar-beet crushing plants, and other heavy and costly equipment.
A fourth type comprises societies for the joint utilization or farm machinery, such as tractors,
threshing machines, etc.
In several countries the cooperative agricultural societies are closely connected and
structurally similar to cooperative credit societies. One and the same society frequently
does a savings and loan business in addition to pooling the purchases of members’ requirements
or storing and selling their produce. Its activities may be still more complex
and embrace cattle breeding, milk testing, supervision of farm cost accounting, insurance,
distribution of electric power, etc.
Numerous cooperative societies of this mixed type are found in Russia, Latvia, Czechoslovakia,
Italy, and Ireland. whereas in England and Denmark it is customary to form
separate societies for each individual function.
Wherever agricultural cooperation has developed successfully, local supply societies
have federated into central leagues. This has led to a further step, namely, the cooperative
production of certain commodities required by the
farmer. In Denmark this stage has already been reached for the central society which
supplies the cooperative dairies and owns a machinery factory, while other cooperative
federations grow their own farm and garden seeds, and still others operate cement
mills.
Cooperative Credit Societies
Cooperative credit societies, known also as rural banks, credit unions, savings and loan
banks, Raiffeisen banks, etc., serve a double function. They aid their members in accumulating
and investing their savings and provide them with credit facilities. For more
than half a century they have proved one of the most potent agencies among people of
moderate and small means, particularly in agricultural countries, for the promotion of
thrift and the elimination of usury. Over and over again in Ireland, Russia, Denmark,
Germany, India, etc., whole villages have been freed from the hands of loan sharks and
usurers, and turned from backward, poverty-stricken conditions into flourishing and progressive
communities by cooperative credit societies.
The cooperative credit society differs from the ordinary commercial bank in several particulars:
It is owned and operated primarily in the interest of the borrowers, who are its
members; the society as such is not interested in profit making; the par value of the
shares is small and payable in installments; in the absence of other collateral, good
character may be accepted as security for a loan.
Germany is the parent country of the modern cooperative credit movement. The principles
underlying the German Raiffeisen societies play a similar role in the history of cooperative
credit as the Rochdale principles do in connection with the cooperative consumers’
movement. The Raiffeisen village bank has become the leading type practically
everywhere. Its main features are unlimited liability, an area restricted to one village or
two, small shares, limited dividends or none at all, indivisible reserve, loans to members
only, low rate of interest, and honorary management controlled by the general assembly
of members, each of whom has one vote only. The principle of unlimited liability has
been followed quite generally. Limited liability . has prevailed only in districts where
there are large landholders, who are unwilling to pledge all their property. In the case of
consumers’ cooperative societies limited liability is the rule.
While details of organization and management may vary in different countries, the basic
principles governing modern cooperative credit societies are the same everywhere and
go back to Raiffeisen. These general historical and statistical facts are true of countries
everywhere which are cooperating, but a few specific countries should be dealt with so
that the reader will have concrete examples of its workings to help fix ideas firmly in his
mind. So we will deal briefly with five countries; England, France, Germany, Russia and
Denmark.
England
Great Britain is not only the original home hut still holds the leadership of the modern
consumers’ cooperative movement. The principles of cooperation. first established on a
firm and successful basis by the Rochdale pioneers in 1844, have unto this day fonned
the basis of all successful cooperative distributive enterprises.
The Rochdale plan is based on democratic control and cash sales at prevailing market
prices. The capital is contributed by the members regardless of the number of shares
owned. Each member has one vote. Dividends are paid in proportion to each member’s
purchases.
The cooperative societies of the United Kingdom which conform to the provisions of
these acts are federated into the cooperative Union (Ltd.), which is a central organization
for propaganda, legal assistance, cooperative education and defense, with headquarters
at Holyoake House, Manchester.
The present gigantic extent of the movement in the United Kingdom may be seen from
data covering 1922. In that year there were affiliated with the Cooperative Union 1,445
cooperative societies and associations, with a total membership of 4,569,089, with
£120,408,650 in share and loan capital and £10,912,636 in reserve funds. The employes
number 183,195. The total trade of the affiliated retail societies in 1922
amounted to £:169,582,357 and the net surplus to £:14,060,291.
Of the total number of societies and associations holding membership in the Cooperative
Union, 1,321 are local retail distributive societies, which form the backbone of the
whole movement. In the northwestern sections of England and in Scotland there are
also six distributive federations embracing sixty-four societies which perform the functions
of purchasing goods wholesale and distributing them to their federated societies.
The membership of the union includes 105 productive societies, with 88,138 members.
Some of these societies are primarily associations of consumers, others are composed
of associations of workers.
There are four supply associations with 8,542 members, six special societies aggregating
1,034 members, and lastly three wholesale societies, English, Scottish and Irish,
with 2,162 member societies.
In England agricultural cooperation centers around the Agricultural Organization Society
(A. O. S.), whose central office is in London. The A. O. S. is not a trading body and does
not engage in commercial transactions. It advises and assists: in the formation of agricultural
cooperative societies and promotes their work. It is controlled by its affiliated
societies working through a democratic board of governors. The A. O. S. was formed in
1901, and in 1922 had 1,460 member societies, comprising 145,094 individual members.
The trade turnover of the societies for that year amount to .£16,002,365.
‘The English C. W. S. Bank
The bank of the English Cooperative Wholesale Society at Manchester, generally
known as the C. W. S. Bank, is the leading cooperative bank in the British Isles. It commenced
a deposit and loan department in 1872, and four years later became the banking
department of the C. W. S. It is therefore closely identified with the consumers’ or
distributive cooperative movement.
The volume of its business may be seen from the fact that in 1922 a total of 11,472 organizations
and 3,794 individuals transacted business with the C. W. S. Bank, and the
deposits and withdrawals for that year totaled £252,833,323. The bank conducts the accounts
of over 1,000 cooperative societies, whose deposits range from a few thousand
to over one million pounds per year. Deposits are received and checks cashed at the
bank’s branches, at cooperative societies and branches acting as agents, as well as at
the bank’s agents. It has 1,500 receiving agencies distributed throughout England and
Wales, and 850 of these are cooperative societies.
France
The cooperative distributive movement in France has developed very rapidly in recent
years and in 1922 included 4,790 societies and 2,498,449 members. The total value or
sales amounted to 1,839,538,723 francs in 1922.
In 1912 the cooperative movement was unified by the formation of the National Federation
of Distributive Cooperative Societies, with central offices in Paris. The National
Federation comprises about half of the distributive cooperative societies in France. In
1923 its membership included 2,291 societies with 1,360,770 members.
The leading federations of agricultural cooperative societies are the Agricultural Cooperative
Union of France, with headquarters at Paris, and a membership of 8,000 societies,
and the Union of Dairy Cooperative Societies in Charente and Poitcu, with more
than 75,000 individual members.
The French Cooperative Bank
The Banque des Cooperatives de France, Paris, like the English C. W. S. Bank, also
grew out of the banking department of a wholesale distributive cooperative society. Up
to 1919 it was regarded merely as a service carried on in connection with the bookkeeping
and cashier’s department of the French Wholesale Society. Since that year it has
developed more and more into a banking medium for French retail cooperative societies
and as an organ for the centralization and administration of the savings of individual
members of cooperative societies. Its growth was 110 rapid that in 1922 the French
Congress of Cooperatives at Marseilles decided to transform it into an independent
organization, distinct from the industrial and commercial departments of the wholesale
society. Accordingly. the French Cooperative Societies’ Bank began operations on July
1, 1922. The capital was made up by the fully paid shares allotted to the wholesale society
in consideration of the affiliated societies at the rate of one share of 1,000 francs
for every thirty members. New affiliated societies have brought the subscribed capital up
to 14,000,000 francs, deposits to 100,000,000 francs, and the total turnover for 1923
reached 2,148,000,000 francs.
The bank has 470 branches and seven regional agencies, three in Paris and one each
in Douai, Lyons, Nancy, and Bordeaux.
Germany
Germany ranks next to the United Kingdom as regards the extent and strength of the
cooperative distributive movement. The total membership of all German distributive cooperative
societies, including those which do not have the form of registered cooperative
society, exceeds 3,000,000 persons. The basic German cooperative law is the act
of May 1, 1889.
The cooperative distributive societies of Germany form three large groups, viz., (1) the
German Cooperative Union, (2) the Central Union of German Consumers’ Societies, (3)
the Imperial Union of German Consumers’ Societies. Together with the two agricultural
cooperative unions (with the exception of the Imperial Union) they form the Free Committee
of German Cooperative Central Unions for the defense of their common interests
in matters relating to legislation, taxation, etc.
The Central Union has had a rapid growth and has become the largest federation of cooperative
distributive societies in Germany. Its central office is in Hamburg. It occupies
the premier position among the national cooperative organizations of continental Europe
outside of Russia, and ranks as regards membership next to the English Cooperative
Union. In 1922 it included 1,350 member societies, with 8,066 stores and 3,161,794 individual
members.
At the present time there are approximately 36,235 agricultural cooperative societies in
Germany, or about 75 per cent of all the registered cooperative societies of Germany. Of
this number ninety-seven were central unions, 19,236 rural credit societies, 4,478 buying
and selling organizations, 3,398 dairies, while the rest were of diverse types. In 1922
there was one of these societies to every 1,014 inhabitants, exclusive of those cities
which have a population in excess of 20,000. From the point of view of land area under
cultivation there was one society for each 757 hectares. (A hectare is 2.471 acres.)
Many of them engage in more than one line of business, including particularly savings
and loan operations. About one-fourth of the total German agricultural cooperative societies
are Raiffeisen organizations. Nearly all are affiliated with one of the large national
federations of farmers’ cooperatives, especially the Reichsverband and the
Generalverband.
Germany is the parent country of the cooperative society, and numerically that type still
surpasses all other kinds of cooperative organizations. Of the 50,046 German cooperative
societies of all kinds which were offlcially registered in 1922, 20,926 were credit societies.
Germany has three very large cooperative banking concerns; the Schulse-Dilltzsch, the
Prussian Central Cooperative Bank, and the German Raiffeisenbank, Berlin. Space can
only be given to a brief statement of the last named bank.
In 1876, Raiffeisen established in Berlin a central bank for the various local credit societies
connected with this movement. In 1923 the name of this bank was changed to
German Raiffeisenbank, Berlin. This bank, which is a stock company, ties together all
the local Raiffeisen credit societies. It receives their surplus funds and makes loans to
them. Under its by-laws, only persons who are members of a board of directors or executive
committee and Raiffeisen societies may become shareholders. All societies
shall have an equal number of shares. There is no obligation to take more shares if the
credit loans are increased. Not more than 5 per cent shall be distributed in form of dividends,
and dividends shall not exceed the interest rate paid by the shareholder for
loans.
The bank operates branches in fifteen cities and has fifty-three sub-branches distributed
throughout the different branch districts. The total number of shareholding societies is
5,735. The turnover in 1922 amounted to 232,800,000,- 000 marks.
Denmark
In the Scandinavian countries, Denmark, Sweden, and Norway, the consumers’ cooperative
movement comprises a total of about 3,000 societies with approximately
700,000 members. Denmark leads with 1,799 societies and 335,104 members. Cooperative
stores of the Rochdale type were introduced there in 1866.
Agricultural cooperation has given Denmark world-wide renown. With a rural population
of but one and a half millions and a cultivated acreage of about three and a half million
hectares (8,645,000 acres) Denmark supplies onethird of the total amount of export butter
on the world market, and, in addition, furnishes Great Britain with from 20 to 50 per
cent of her total imports of bacon and eggs. Moreover, Denmark exports a large surplus
of field and garden seeds, potatoes, and other farm products.
Small farms predominate in Denmark. Over 50 per cent are not larger than 30 acres.
The small farmer, in order to maintain himself independent, has found it necessary to
cooperate with his neighbors, and in this way has been able to build up a great national
agricultural industry. The different cooperative societies have united nearly 200,000
farms into one great industrial enterprise which within the past forty years has made
Denmark one of the leading agricultural export countries of the world. Eighty per cent of
Denmark’s export trade consists of farm products.
Danish butter has become a world market commodity. Out of a total of 1,654 dairy societies,
1,433 are operated on cooperative lines and their membership includes more
than 180,000 farmers. They consume about 90 per cent of the entire production of
whole milk.
Next to butter, bacon is the leading farm product marketed by cooperative means.
Denmark furnishes most of the bacon consumed in England. More than 86 per cent of
the entire Danish production of bacon and other pork products is marketed through cooperative
aseociations, of which there are forty-six with 156,000 members over against
sixteen small private concerns.
There are now about fifty folk high schools in Denmark. The age of the students ranges
from 18 to 25 years. About half of the students are children of farmers owning from fifteen
to 150 acres of land, while the other half are mostly children of small landholders,
artisans, teachers, clergymen, etc. Fully 95 per cent of the students come from rural
communities. Among the subjects taught are history, natural sciences, economics,
bookkeeping, Danish language and literature, business arithmetic, geography, elocution,
and gymnastics. The courses extend over six months of the year. The work of the
folk high schools is supplemented by a number of schools of agriculture which have
been established in all parts of Denmark. About half of the students enrolled in these
agricultural schools come from the folk high schools. In the folk high schools, as well as
in the agricultural schools, great stress is laid on cooperation, its ideals as well as the
practical application of its principles. Eighty per cent of the schools of Denmark are controlled
by the cooperative societies.
The far-famed cooperative institutions of Denmark had their earliest beginning in the
form of credit societies as far back as 1850. In that year the basic law for “the establishing
of credit societies and credit offices for property owners” was enacted, under which
cooperative financial undertakings have functioned to this day. The purpose of that act
was to secure for the small farmer the cheapest possible terms for loans. At the present
time there are fourteen credit societies (Kreditforening) and 168 short loan societies
(Forskudsforening) in operation. The statutes and general organization of the various
Danish credit societies are very similar. The whole scheme of operation is based on
self- government. The supreme power of amendment is vested in the general meeting
of the members, and in certain societies in the members jointly with the bondholders.
Changes in the by-laws require approval by the ministry of the interior, which supervises
the accounts and generally appoints one of the auditors. The business management lies
in the hands of a board of directors. A committee of members responsible to the general
meeting, and elected by it, acts as intermediary between the general meeting and the
hoard of directors.
Before a property owner is elected a member his property is appraised by official appraisers.
Loans are granted on the basis of their report. Loans shall not exceed threefifths
of the appraised value. The majority of the loans are made at less than half of the
appraised value. Members are jointly and severally liable for the loans, and a first mortgage
is required as additional security. The amount of the loan is paid out in interestbearing
bonds, which are quoted daily on the Copenhagen Stock Exchange, and from
the securities in which a large part of the private and public funds of the Danish people
are invested. All bonds are issued to bearer. The creditor can not demand repayment on
notice and has no power of foreclosure with regard to these bonds. They are redeemable
by the society. The borrower generally realizes on the bonds through a bank or
broker.
The leading cooperative bank in the Scandinavian countries is the Danske Andelsbank
at Copenhagen. Although Denmark has for many years ranked as one of the foremost
countries in the field of cooperation, it was not until 1915 that a central cooperative bank
was established. In 1922 the capital stock of the Andelsbank was held by 750 consumers’
cooperative societies, 402 cooperative dairies, 170 cooperative feedstuff societies,
eighty-five cooperative savings societies, and numerous other cooperative associations,
as well as 22,194 individuals. The bank’s total paid-up capital stock in that year
amounted to 15,689,700 crowns, and its total operations to 13,003,038,434 crowns .
CHAPTER VIII
CUT-THROAT COMPETITION
The problem that economists attempted to solve from the beginning was the production
and distribution of goods without loss to one and profits to another. How can equal values
be exchanged equitably, each person getting an equivalent of his product? This has
been called “equitable commerce.” How were the value and price of goods to be established?
The answer was, “their cost of production.” If goods were to be exchanged at
their cost of production, it meant no profit to one and loss to another; that is, it would do
away with the profit system. The term used to describe this relation was “cost the limit of
price,”
By what method was the price of goods to be kept down to their cost of production?
Adam Smith, the Father of Economics, said it was to be accomplished by free competition
and laissez faire. These terms were always associated together by the economists
of a century ago and they mean the same thing. Laissez-faire means “let things alone,”
or “let things drift,” no interference in the contest; a “free field and a fair fight.” In offering
goods for sale under free competition, the price would be driven down to their cost of
production and distribution. Competition was the solution of the economic problem.
These champions of competition held that it was right and proper for a man to buy
where he can buy the cheapest, and sell where he can sell the dearest. That it was the
duty of the government to restrict all combinations that would restrain competition. That
competition was the life of trade and should not be interfered with in any way.
Let it be understood that the kind of competition meant here is the economic kind. the
commercial kind, which was advocated by Adam Smith, Ricardo, and about all other
economists for almost a century. The economists classify five different kinds of competition,
but we are not concerned here with rivalry. biological competition, social aspirations,
or the sporting kinds. However, it might be said that those forms of competition
are not unrestricted as were the economic kind during its trial. The contest for supremacy
in football is hedged about with rules and regulations. One must not purposely
break another’s leg or neck to put him out of the game. One must not even walk on another’s
face deliberately to disfigure and disqualify him for the contest.
In prize-fighting contests, there are many rules governing the test to determine the
victor.
They must not bite, kick nor butt one another or hit below the belt. But no such rules
were ever advocated or enforced in the economic contests for supremacy. Everything
went. Laissez-faire meant hands off; no interference, no rules and regulations; anything
and everything to win, and everything was used that was believed would put the competitor
out of the running. The competition advocated and practiced meant industrial
war. With an unrestricted field, it was thought that only the best, the useful, the cheapest,
could survive. It was the way to find out which were the best fitted to survive.
Every man in business must be permitted to do just as he pleased. If he cheated his
customers, it was believed they would cease patronizing him and prove that cheating
would not pay. This policy was adopted throughout England. The restrictive laws were
repealed or ignored, and the universal free play of competition became the prevailing
ideal. A free fight at home and free trade abroad was the national policy. England was a
nation that thoroughly believed in competition as the economic solution and it was there
it got its fairest and freest trial.
All restrictions, mental and legal, having been removed, the fiercest contest ever waged
for supremacy occurred, particularly in manufacturing. The men at the head of those
concerns became Ishmaelites towards one another. They gave no quarter, but stood
and fought to a finish. The number of combatants decreased rapidly as the hattie progressed.
Some were killed off j some combined with others to increase their fighting
power, and to avoid bankruptcy. The strongest did survive. It was the large corporations
that survived, demonstrating that competition weakened the weak, and strengthened
the strong.
The big corporations that were formed were a benefit to the stockholder, but the people
at large were not benefited by them. for as soon as they succeeded in driving out the
weaker ones, giving them a monopoly of the business, they recouped their losses sustained
during the fight by raising the prices of their goods.
The condition of the working people in England in the latter part of the eighteenth and
early nineteenth centuries was by far the worst period ever known in that country. The
struggle became so fierce that parents drove their children to a slavery more cruel than
the negroes had known before. Greed of the employer and the ruthless system of competition
created in both the employer and the parent a disregard for child-life that was
appalling. The result of this contest was to lengthen the hours of labor and lower the
wages of employees. There was an absolutely free competition for jobs between the
children and men, between women and children and men, to see who could work the
cheapest. The children won. They were the fittest in this contest. But many of them
committed suicide rather than endure the tortures of the industrial grind.
The great social and economic philosophers who advocated unrestricted competition as
the way to preserve and strengthen individuality learned after some years of trial that it
was just the thing to extinguish individuality. The stunted children, from underfeeding
and overworking, were not the possessors of strong individualities. There were millions
of that sort and only a few hundred of the favored kind who profited by the degradation
of the mass.
The champions of unrestricted competition were known as the Manchester School of
Economics. They were the greatest economists of that period; all apostles of Adam
Smith and Ricardo. When poverty and misery followed the application of this doctrine of
competition, a storm of criticism overwhelmed the Manchester School. They admitted
economic conditions were bad, but contended that if the theory could be applied long
enough it would solve the problem. (A half century was not enough.) But the people replied
to these wise philosophers that as they were now starving, it was evident that they
would all be dead before the cure became effective, and that they would have no
grandchildren to enjoy the great benefits promised.
Laissez-Faire Fizzled
The swing, away from competition and laissez-faire, was back to restrictive legislation
like the “factory acts.” Conditions improved and the people lived but Manchesterism
died. Restrictive legislation was better for workingmen than cut-throat competition, but
such legislation was not and can never be the real solution.
While the English school of economy is responsible for the competitive theory, it was not
confined to that country, but was accepted generally throughout the world. For almost a
century the economists continued to advocate it as the solution of economic problems.
The United States had its laissez-faire advocates, and practical workers of the theory.
The manufacturers seized on it as their salvation. They did not believe as the economists
did that competition would destroy profits, but would increase them, and such was
the case. A critic of competition says of it that “it is a rough game played for high stakes
without an umpire to see fair play.” That it begets hostility will hardly be questioned. A
competitor never believes his rival uses fair and honest methods in the battle for
business.
In the United States the war of competition was not as fierce as it was in England, but it
was extreme enough to demonstrate what it could accomplish. The people here could
escape its rigors by trying something else when it became unendurable. Free land
saved many, whereas in England they had no such avenue of escape. In the factory districts
the conditions became very bad. Children competed with men for jobs and won
just as they did in England. Wages were driven down and hours of labor increased.
Parents drove their children to slavery and some to suicide. Cut-throat competition did
not cut the throat of the big manufacturers, but those of innocent children. In his “Evolution
of Industrial Society,” Prof. Richard T. Ely says of this condition: “The New England
mills generally ran thirteen hours a day the year round, while one in Connecticut ran fifteen
hours and ten minutes. At Paterson, New Jersey, the women and children had to
be at work at half-past four, and sometimes were urged on by the use of the cowhide. At
Mendon. Massachusetts, a boy of twelve drowned himself in a pond to escape factory
labor. The United Hand Loom Weavers’ Trade Association reported, in 1835, that they
could earn in twelve hours but from sixty-five to seventy-one cents a day.”
Some states prohibited child labor and the manufacturers of those states complained
that they could not compete with the prices of the manufacturers of states that did permit
child labor. “Free” competition meant slavery for children and profits to the factory
owner.
This ruthless competition caused employers to sacrifice limb and life of their employees
to obtain profits. In their brutal warfare on each other, manufacturers would not spend
the money necessary to keep their factories in a sanitary condition, sacrificing the lives
of the helpless women and children in their employ.
The result of the fierce struggle between manufacturers was the same as in England. It
weeded out the small and weak, driving some of the small manufacturers into combinations,
and generally resulting in a few concerns getting all the business.
Competing Railroads
Competition in parallel railroad lines has been thoroughly tried out in the United States,
and its futility demonstrated for keeping down rates to cost, as it was intended to do. In
some instances rate wars were waged and sometimes resulted in lowering rates and
bankruptcy for one of the lines and loss of investments to its builders and stockholders.
Then rates would go up again to make up the loss of the fight, or the battle resulted in a
combination or agreement that put the rates up to the limit of all the traffic would bear.
The New York Central is made up out of a number of previously independent lines between
Albany and Buffalo. Useless lines have been built in many sections of the United
States, and the companies who own them make the people pay dividends on those useless
or at least unnecessary lines which raise the rates instead of lowering them as the
old economists thought. There has been no competition between railroads since old
men were boys-no more than there is between banks, and we have many thousands of
them. Yet the old economists thought numbers would force competition.
Competition bas been tried in telephones, telegraphs and street cars, with monopoly as
the outcome and high rates for the people. So it is not a solution of the economic problem.
The champions of it say it has never had a fair show. If not, it is quite likely it will
get none, for the result of what was tried is enough for the world.
Competition has not built up all of the trusts or monopolies. however. The government is
responsible for most of them by granting special privileges to the favored few. Monopolies
established by government are: patents, copyrights, trademarks. public consumption
monopolies, tariffs, fiscal monopolies, franchises and rights of way, land grants of
public domains containing natural resources of oil, coal and other minerals.
The anti-trust law was a ghastly joke played on the people. The government established
most of the monopolies and then pretended to outlaw them. Of course none were abolished
and no wise person expected them to be. We had “Teddy the Trust-Buster,” and
he made much noise and did succeed in eliminating the Tennessee Coal and Iron Company
by turning it over to a more powerful trust.
The government-established trusts soon curbed “Teddy’s” activity against them by
showing him who the real rulers were. They caused the panic of 1907 with banks issuing
imitation money, which they called “scrip,” and the newspapers represented the
people as crying out against “trust-busting” and it was ended for all time.
These government established monopolies permit no competition and they can fix their
own prices for their products. There is no intention or tendency to lower prices to the
cost of production. They are run for profits only and stand in the way of the solution of
the economic problem.
Competition and Banking
The money monopoly alone is enough to impoverish a people that must use money.
The government grants a special privilege to issue money to a favored few known as
bankers and this monopoly enables them to fix the price or interest on money at a rate
which almost consumes the surplus wealth of the nation.
Any talk of free competition in the fields monopolized by these great concerns is an absurdity.
In order to abolish them it would require the abolition of government itself, and
the people generally are strong upholders of government and therefore of government
established monopolies. But even if there were no privileged monopolies, cut-throat
competition would establish them, as has been shown.
There are thousands of cases where there were no special privileges granted and
where the result was the same as where there were special privileges. Take a case of
two grocery-men in a neighborhood which has about enough trade for one good grocery.
One decides to rid the neighborhood of the other unnecessary one and chooses to
do it by competition. The other grocer sees that he must meet the prices of his rival and
competition is set going; nothing to help or hinder either from testing which has the
greatest staying power. Let us say both have the same size stock of equal trade value.
They cut prices until they reach cost price and then what? One has a thousand dollars
in the bank, the other hasn’t a dollar. The one with the money can still cut prices and
continue to run, but the other without capital can’t do it.
The defeat of the one was not caused by a special privilege but by extra capital, and
when his competitor is out of the way, the victor can put his prices up and with all the
trade of the neighborhood he can recoup his losses sustained during the fight. This is
the fiercest kind of competition and it leads to monopoly as surely as does the privileged
kind. It may not be of a permanent kind as one with a special privilege, but it is not the
solution of the problem of permanently lowering prices to cost. There are enough grocery
stores in every city to compete prices down to cost if it were possible to do it in that
way, but it never occurs and never will that way-any more than numerous banks tend to
the lowering of interest.
The selling of goods by competition in advertising raises the price of goods instead of
lowering it, for the advertising expense is added to the price and the consumer pays for
it. A difference in capital gives an advantage in competition for which competition offers
no remedy. How is the poor man to compete with the capitalist in business? In a race,
how is the man on foot to compete with the one in an automobile? How is the landless
to compete with the landlord?
A belated free-lance champion of competition said recently that he endorsed “cut-throat
competition” when properly used. as it would cut the throat of monopoly. That is the
eighteenth century doctrine revived. All one needs to ask is for the names of some of
the monopolies which competition has destroyed. There can be hundreds named of the
great combinations which were the result of cut-throat competition, and thousands of
small or weak competitors whose throats were cut.
The few advocates left over from last century who still believe that competition is the
remedy are the outcasts of today. They have no standing in the institutions of learning.
They are “a cry in the wilderness.” The old theory has been exploded by trial and the
compromise of the present is still a failure.
The academic economists of today defend competition as a good thing if it is properly
restricted. That is, they don’t believe in free competition. They don’t believe in outlawing
it, either, for the big combinations have use for it when some little fellow cuts into their
profits. The economists talk of regulating competition, but there has never been a law
passed or even advocated to prevent the big ones from cutting the throat of the little
ones by lowering prices below cost. Of course such a law would not solve the problem,
but it would show some sympathy for the weak in a contest with the strong. Economic
competition has some merits, but it is seldom used in a way to result in social benefit.
The tradesman who captures the business as a general rule is the one who gives best
service, and best service is nearly always joined with higher prices. People will pay
more for better service which tends to the raising of prices instead of lowering them as
is claimed for competition. It is a common thing to see a restaurant with cheap food and
poor service put out of business by another which will charge higher prices but which
will provide better food and better service.
The capitalist system of profit making has resulted in one-tenth of the people owning
about all the wealth of the United States. Sixty-five per cent of the people own but five
per cent of the property j two per cent of the people own over sixty per cent of the nation’s
wealth. Does that look like a guarantee for the future for the vast majority of
people?
Business Failures
In March, 1926, the “Farmers’ Magazine” had an article on “Cooperative Economics,” by
Senator Smith W. Brookhart, in which he says:
“Not long ago a distinguished United States Senator said that 92 per cent of the people
who go into business in the United States ultimately fail. Another distinguished United
States Senator put the statement in the “Record” that these failures were 96 per cent.
The lowest estimate I have ever seen was 80 per cent. Taking any of these percentages,
there is but one conclusion competitive economics is a failure. It fails in its own
household. Any system which results in such a percentage of failures is without defense,
and must be rated a failure per se.
“Is there any other system of economics in the world which gives promise of greater
success, and one which is founded more distinctly upon principles of justice and humanity?
I think there is, and I have designated this rival system as ‘cooperative economics.’
”
No one would choose cut-throat competition for himself. All avoid it when they can.
Those who advocate it as being “the life of trade” never help to establish a rival business
to his own in his neighborhood. Laboring men who advocate it for the merchant
join a union to protect themselves from competing for a job with a non-union man, and
all of them cut down weeds to stop the competition in their gardens.
Instead of struggling with one another over the product to see who shall possess it, if
the same amount of energy was turned into the production of new products, there would
be at least twice the amount of goods for each. without the chance of one being deprived
of goods altogether, as is likely to occur in a fight for possession of goods. In this
game of get, it is not the one that has produced the greatest amount of goods that possesses
the most of them, but the one who has the sagacity to wheedle the other out of
his product. This struggle is not a Wresting from nature her good things of life, but a
struggle with man to take what he has acquired.
The Biological Argument for Competition Is as False as the Political
“The struggle for existence and the survival of the fittest” is a law of life that does not
always make for progress. In the struggle for existence with extreme natural conditions,
the life that survives is inferior to the same form of life that developed where there was
no struggle.
Take a case in plant life on a bleak point of land. The plant life that survives the fierce
struggle with the elements is not the large, strong and beautiful tree, but the bent and
gnarled little tree that is much inferior to its species that grew where the extreme struggle
for life was not present.
In the gardens we find that the “struggle” of the flowers and the vegetables with the
weeds is not beneficial to the first two, so we remove the weeds. We would not do this if
“struggle”competition-was a benefit to plant life. “The survival of the fittest” means the
weeds are the “fittest.”
The same thing is true of animal life. Fierce struggle brings about degeneracy more frequently
than advancement. The struggle for existence has produced many forms of
parasites. Parasites are degenerates. They were the “fittest” to survive. To those who
think the “fittest” means the “best,” it is in order for them to tell us what bed-bugs, lice,
fleas, etc., are best for? They have “survived” during periods when high forms of life
have perished.
Man’s fierce struggle with nature is a stunt. ing, a dwarfing inftuence rather than a developing
one. The fanner is not strengthened physically, mentally, morally, or financially
by wrestling with unproductive soil. Conflict is a good thing to avoid and intelligent people
generally do avoid it when there is an opportunity to do so,
Cooperation Versus Cut,Throat Competition
Cooperation, and not cut-throat competition, is the solution for economic ills. Competition
is a profit or loss game. It is not character, but cunning, which wins in competition.
Competition and harmony are the opposite principles in life. Ruthless competition
means division. It means every man for himself, and the devil take the hindmost,
Competition and cooperation are opposites.
These two principles can not be harmonized. They are mutually exclusive. This might
indicate that as competition is a failure, cooperation might be a success, This is the position
of some distinguished economists; none of them attempt to mix the two. Prof. Edwin
R. A. Seligman, the noted economist, believes that competition is useful in some
things in our commercial system, if properly regulated, but he sees very clearly that it
can not have any part in a cooperative enterprise. He says in his “Principles of Economics”
that: “Cooperation means the abandonment of competition in distribution and in
production. In distributive cooperation, the customers who are members of the cooperative
societies elect one of themselves as manager of the store and share any resulting
profits. As they are expected to make no purchases elsewhere, there is no competition
In productive cooperation the object is to eliminate the capitalist and to remove
competition between the workmen. The laborers elect one or more of their number to
control the enterprise, and divide among themselves the gains.”
The profit system means to gain more than one gives. The service motive is to give an
equivalent for what you get. Either the people or profits must suffer. Cooperation is not a
profit-making business, but a mutual enterprise.
The cost price is to be established by mutual agreement and not because the exchangers
of commodities are forced by competition to lower the price to cost. Cooperators will
do it because it is serviceable and equitable, not because they must cut prices to gain
trade and profits. When one has been forced by competition to lower a price, he will
raise the price the moment the pressure of competition is removed. Therefore, it is not
from high motive of service or justice that the price is made reasonable but because
greater loss to his business can be escaped by lowering the price. It is the old idea of
compulsion. Make him do it; don’t let him do it voluntarily. Cooperation is the opposite of
this. It is voluntary and mutual. The motive is service and not profit and in return the cooperator
receives service. That is, he furnishes commodities at cost, and in return receives
commodities at cost, no profits, no exploitation.