Popular Science Monthly/Volume 36/April 1890/A Lesson in Co-operation
| A LESSON IN CO-OPERATION. |
By CLARENCE N. OUSLEY.
THE commercial method of the times seems to be the merging of competing enterprises into syndicates and trusts under a single management. Naturally enough a similar tendency is becoming manifest among producers as well as among manufacturing and transportation agencies. Various meetings and conventions among farmers of late have suggested the establishing of co-operative stores and exchanges controlled by a central bureau, which shall be the head of a gigantic farmers' pool. Indeed, the first steps to this end have already been taken in several Southern and Western States. In view of the event to which these signs point, it is not amiss at this juncture to interpose a lesson in co-operation furnished by the rise in 1887 and fall in 1889 of a large enterprise of this sort, viz., the Farmers' Alliance Exchange of Texas. It is not the purpose of this paper to discuss the expediency of such commercial ventures. The intention is merely to give an historical account of the particular case under examination, without even pointing a moral further than that which would suggest itself to any thoughtful mind—viz., like causes, operating under like conditions, will produce like effects.
The Farmers' Alliance of the Southern States, which was consolidated with other farmers' organizations at St. Louis in December last into the Farmers' Alliance and Industrial Union of America, had its origin in Texas several years ago. One of its original purposes, according to the declaration of its constitution, was "to develop a better state financially" among its members; and in pursuance of this purpose the Farmers' Alliance Exchange of Texas was organized. It was the first extensive business experiment under the Alliance movement, which had meanwhile spread over the South, and was therefore watched with considerable interest. At the annual meeting of the Texas Alliance, at Waco, in August, 1887, the following plan of business was adopted: 1. To incorporate the Farmers' Alliance Exchange of Texas. 2. To sell farmers' produce and to buy farmers' supplies as the farmers' agent, and to erect suitable buildings for conducting the business.
3. The capital stock to be $500,000, divided into twenty-five shares, controlled by twenty-five trustees elected by the State Alliance.
4. To raise the capital stock by assessing each member of the Alliance two dollars, and on receipt of $50,000 to credit each share with ten per cent paid in, and like credit to be made for each subsequent payment of the same amount. The twenty-five trustees were elected, and a State business agency, previously in operation on a small scale, was merged into the new enterprise. From this time forward for several months there prevailed among the members of the order the most hopeful and enthusiastic spirit possible to imagine, amounting to almost a universal conviction that financial salvation was come.
The main body of the Alliance was composed of tenant farmers, who as a class farm on the "third and fourth" that is, by paying a third of the cotton and a fourth of the corn as rental for the land. They are possessed of little more than a meager household and farming equipment, and are generally compelled to mortgage the growing crop to the country merchant for the year's supplies of groceries, clothing, and implements. Their hope was to escape from the country merchant, who, to say the least, does not conduct his business on the plan of quick sales and small profits. To afford such escape was equally the design of the Exchange. It may be readily perceived, therefore, that the Alliance was wrought to the highest pitch of excitement in contemplation of abolishing the awful credit system which is a veritable millstone about the neck of the improvident farmer. In addition to the work of public lecturers sent out by the Alliance, several papers published in the interest of the order kept the Exchange topic red hot, while it was also a theme for discussion in the papers at large, so that the general public was in a state of greater or less expectancy. In connection with the Exchange it was announced by the Alliance organs and speakers that the movement would result finally and not a very far off "finally" at that in cotton and woolen mills, implement and wagon factories, a huge printing-house, etc. A plan was formulated also for establishing an Alliance University, with departments of law, medicine, and theology. From first to last several factories have been started, but without a single exception they have failed to reach the stage of successful operation.
Immediately after the Waco meeting of the Alliance, the twenty-five trustees met and delegated the transaction of business to a board of seven directors, which was organized by the election of the following officers: a president, secretary, treasurer, and a general business manager. Meanwhile a charter had been procured in accordance with the foregoing plan, and the establishment was located at Dallas, in consideration of $10,000 cash subsidy, a site for buildings, and other substantial inducements. The business was opened in September, 1887, in temporary quarters provided rent free by the citizens of Dallas. The published report of the manager for that month shows an expense account of $793.91 and a cash balance of $201.40, or total resources amounting to $991.31. This was a part of the $10,000 cash subsidy, which, though never quite paid in full, was practically discharged and furnished the available capital for some time.
The Exchange commenced business by handling cotton and grain, and farm implements. The former were sold after the plan of a regular commission-house; the latter were procured and furnished at good discounts by centering the trade direct to a wholesale dealer, who was nominally the Alliance implement agent, but in fact was selling on his own account. It was but a short time, however, until the business was extended to the buying and selling of dry goods, groceries, and general supplies.
Notwithstanding the lack of capital which appears from the business manager's reports, the Exchange was complimented by the mercantile public with a fairly good credit, and may be said to have commenced life under the most favorable circumstances. The financial statement for the forty-five days ending October 31st, is as follows:
| Accounts and bills receivable | $9,962 51 | |
| Office fixtures and furniture | 202 20 | $10,164 71 |
| Liabilities. | ||
| Accounts and bills payable | $9,511 24 | |
| Total liabilities | $9,511 24 | |
| Net capital | $653 47 | |
| Losses. | ||
| Expense account | $312 64 | |
| Help account | 1,588 82 | |
| Total losses | $1,901 46 | |
| Gains. | ||
| On bagging and ties | $79 65 | |
| Interest and discount | 1 80 | |
| Commission account | 493 41 | |
| Merchandise | 62 | |
| Total gains | 575 48 | |
| Net losses | $1,325 98 | |
| Investment | $201 40 | |
| Received from donation, etc. | 1,778 05 | |
| Total capital | $1,979 45 | |
| Deduct net losses | 1,325 98 | |
| Net capital | 653 47 | |
It will be observed that the September cash balance of $201.40 has been supplemented only by $1,778.05 "received from donation, etc.," which was mainly "donation" and little "etc."—that is to say, chiefly from the citizens' subsidy and almost nothing from stock subscription. The statement for November exhibits an increment of $1,122.40 from donation account, and practically nothing from stock, with a net capital of only $1,195.17, showing the business to be still operating at a loss.
At a meeting of the directors, November 5, 1887, a novel plan of business was adopted which became the central and chief feature of the institution, becoming first the means of its sudden advancement, and later the cause of its sudden suspension. It is attributed, in the minutes of the meeting, to one of the directors, but probably owes its origin to the manager, who was the controlling spirit of the Exchange enterprise from its inception to the spring of 1889—the period of his management. The plan was briefly as follows:
1. Members of each Sub-Alliance, wishing supplies on credit, to furnish a schedule of their probable needs during the year, together with a showing of their full financial responsibility, and a pledge of cotton at least three times as much as the amount of credit.
2. These several members of each Sub-Alliance to execute a joint note for the estimated amount of supplies, said note to draw interest after May 31st and to be paid November 15th.
It was designed that these notes should be signed also by responsible farmers (if necessary to make them bankable), who would secure themselves against loss by taking mortgages on the growing crops. In this way the country merchant was to be avoided.
These joint notes acknowledged full consideration in the face, and were to be credited finally with the difference between the face and the actual credit account. The notes at first were accompanied by a sort of bond of corresponding number, issued by the Exchange, agreeing not to part ownership with the notes; but, upon the failure of the order during November and December to pay in any considerable amount of the capital stock, the available donation being then about exhausted, the notes were, by order of the board of directors in January, used as collateral security in borrowing money.
The business manager's report for the month ending January 31st showed $4,157.36 increase of capital during the month, or a total of $5,247.93. The months of January, February, and March constituted a period of great activity. The country was alive with lecturers in the joint employ of the State Alliance and the Exchange; "The Southern Mercury," organ of the order, had an extensive circulation, and the Exchange was issuing a semimonthly circular letter containing private advice, discounts, etc. During this time the total capital was increased to $20,215.38; the amount of joint notes reached $200,974.88, on which goods had been advanced to the amount of $108,371.06.
An extract from the business manager's report for the month of March shows "the beginning of the end," the first embarrassments that soon culminated in a serious, not to say fatal, collapse:
"The business manager spent the whole of the month of March in trying to negotiate banking arrangements whereby a loan could be effected at a reasonable rate of interest, to provide funds to purchase goods with which to supply the contracts accepted by the committee of acceptance; but all the efforts made were unsuccessful, and tended to produce the conviction that those who controlled the moneyed institutions of the State either did not choose to do business with us, or they feared the ill will of a certain class of business men who consider their interests antagonistic to those of our order and corporation. At any rate, be the causes what they may, the effort to borrow money in a sufficient quantity failed."
The month of April showed an increase in capital, from stock paid in, of $1,526.36. During the month of May maturing obligations failed to be met, notes of the Exchange went to protest, and general disaster followed, amounting almost to a total suspension of business. During all this time the most hopeful statements were made by the manager to the public, and the general fraternity were induced by official utterances to believe that the troubles of their business were precipitated by a combination of bankers and wholesale merchants to crush it out. A meeting of the State Alliance Executive Committee was called, and, after a few days of examination into the business at Dallas, the following call, signed by the seven directors, was issued:
Members of the Farmers' Alliance of Texas:
In addition to this, there was issued about the same time a secret circular, signed by the officers of the Exchange, which is so violent in language as to almost merit the adjective "revolutionary." The circular is too long for reproduction here, but the main points may be summarized as follow:
These utterances indicate the bitterness of feeling incited by the Exchange management and the officers of the State Alliance. While the circulars were condemned by a few conservative spirits, and were subsequently regretted, probably, by all reasonable men in the order, at that time they were not publicly disputed except by outside parties. "The Texas Farmer," organ of the Texas State Grange, went to the trouble of interviewing prominent bankers and business men in Dallas, who uniformly denied the existence of any such combination, and affirmed their goodwill for the Exchange, attributing its failure to lack of business management. From the publication of these circulars, in May, to the 9th of June, the Alliance was in a state of violent excitement. In addition to the circulars and other publications, lecturers covered the entire State, and, by every possible argument and appeal, urged the members to take stock and save the business from final ruin. The effect was to raise only little less than $30,000, though subsequent fruits of the same canvass increased that amount to nearly $50,000. The statement for June shows a total capital invested of $56,409.26.
This call on the 9th of June, 1888, which became a memorable day in Alliance history, forcibly illustrates the weakness of such financial schemes as depend on popular subscriptions, or per capita assessments, with no other power of collection than the force of fraternal obligation. The membership of the Alliance in Texas had been frequently estimated by Alliance speakers and writers at 250,000, though it probably never reached more than half that number—if more, it all the more strongly illustrates the point. In speaking of the resources of the Alliance business, it was common with leaders to say that unlimited sums could be raised on call. For instance, an assessment of one dollar per capita would bring in, within thirty days, $125,000 (or $250,000, according to the highest estimate of membership). Here was a case of prime importance in which it was urged that not only the salvation of the business but the freedom of the farmer was at stake, and yet the total subscriptions, first and last, did not exceed $50,000.
Notwithstanding the disaster impending in the early spring, the board of directors at their March meeting entered into a contract for a building, to cost $34,117, which was in due time completed, though never one fourth paid for, and in April opened a branch Exchange in Belton, Texas. The Belton business received substantial inducements from citizens amounting to about $10,000.
It is unnecessary to further follow the business in detail. The June rally failed to raise the needful amount of funds to make the Exchange easy. Extensions were secured from time to time, and efforts were constantly made to raise the capital stock, but without material success. The Exchange never recovered from the wild and extravagant methods of its first winter, and in the summer and fall of 1888 it was further crippled by attacks of "The Southern Mercury" the State Alliance organ, on its business management. This caused internal dissensions which threatened at one time to disrupt the order, creating two bitter factions, which for a long time refused to be reconciled. Early in 1889 the business manager of the Exchange resigned, and a new one was elected in his stead. Meanwhile there had been a change in the editorial management of the "Mercury," and the spirit of true fraternity soon reasserted itself, the order becoming again firmly cemented, though it had lost materially in members. However, the better part remained, and the Alliance has since been happily progressing in all that relates to social and economic education.
The management of the Exchange during 1889 was conservative and judicious, and, under other circumstances, he would doubtless have made it a successful enterprise , but it was too heavily encumbered, and the confidence of the order in it had been sacrificed. His report to the State Alliance, August, 1889, is as follows:
| Resources. | Liabilities. | ||||
| Exchange building, Dallas | $70,000 00 | Bills payable on merchandise | $44,704 42 | ||
| Exchange building, Belton | 12,000 00 | Bills payable on buildings | 29,300 00 | ||
| Exchange building, Longview | 9,000 00 | Accounts payable | 1,285 81 | ||
| Live stock, Henrietta | 7,500 00 | $75,290 23 | |||
| Merchandise, all points | 50,238 00 | Present net worth | 104,557 77 | ||
| Accounts and bills receivable, estimated good | 39,210 00 | ||||
| $179,848 00 | $179,848 00 | ||||
Cash received and paid out.
| Amount paid on old indebtedness | $34,103 43 | ||
| Amount received from sale of lands | $14,800 00 | ||
| Amount received from capital stock | 5,276 50 | ||
| Merchandise sales and collections | 14,026 93 | ||
| $34,103 43 | $34,103 43 |
Report made to directors in January showed the mercantile indebtedness to be $46,000. The real fact is that it was $78,817.85.
The State Alliance, in August, 1889, passed a resolution providing for a voluntary trust fund of $75,000, or enough to discharge the entire indebtedness of the Exchange, but not to be used until raised in full. The trust fund never reached a third of the required amount, and in December last the Exchange building at Dallas was sold under mortgage for $35,000. Immediately there-after the manager proceeded to wind up the affairs of the Farmers' Alliance Exchange of Texas.
To recapitulate: The Exchange commenced to do business without capital, depending on donations and assessments, with no power to enforce collection. Instead of confining its operations to buying and selling as the farmers' agent, it attempted to take the place of the country merchants, and to furnish supplies on credit to all the farmers of Texas. To do this successfully would require millions instead of thousands. The reason the banks refused to lend money to the Exchange in March, 1889, was neither opposition to the Exchange nor undue friendliness to the jobbers, but plain business prudence. The Exchange was doing a larger business than its capital warranted; the joint notes used as collateral security were represented by accounts from twenty-five to seventy-five per cent less than the face of the notes, and while innocent purchasers could be protected in the courts, still litigation is a resort which every prudent business man tries to avoid; some of the joint notes were offset by bonds agreeing not to part ownership, while as a matter of fact they were placed in serious jeopardy by being put up as collateral security for extensive loans. The wisdom of these precautions was demonstrated in the final outcome of the Exchange's management.
In October last the representatives of the trust fund, which reached about $17,000, perceiving that it would be inadequate for the ends sought, met at Dallas and placed it in the hands of the manager, instructing him to save such part of the Exchange as might be possible. Since the sale of the building there has been organized a new corporation, composed of Alliance members representing the trust fund; and this new corporation, known as the Farmers' Alliance Commercial Agency, has purchased the Exchange building, and designs carrying on a general buying and selling agency. It is to be hoped that the new enterprise will be more successful than the old one was.