pay the most for the funds have the use of them. The amount that any member bid in excess of legal interest was called a premium, and as the premium went into the common fund and inured to the benefit of all the members, the legality of the premium has almost universally been upheld by the courts. In theory this was a fair and reasonable way to determine who should take precedence in the right to borrow, but it cannot be denied that premiums, like fines, became the subject of abuse and worked a hardship in many cases. The national associations that exploited the country from fifteen to twenty years ago seized on the fines and premiums as two important features of their system and made them the means of mulcting thousands of individuals throughout the country. Premiums, I am glad to say, are, like fines, a vanishing quantity. In principle there is no reason why a Building and Loan Association should charge either more or less for its money than other money-lending institutions are charging in the same community at the same time.

The payment of interest on the money advanced for homebuilding, the premium bid by members over and above the legal rate of interest, and the fines assessed against delinquents constituted from the very first a handsome source of profit to these associations; hence early in their history there were inducements to people to become members, not only for the purpose of acquiring homes, but also on account of the profits that accrued; and thus arose the two classes of members, depositors and borrowers, which still exist in every healthy, successful association. The introduction of the depositing member was in no sense a departure from the original purpose of the association, but was rather an additional means of securing the same end, as the depositing member paid into the common treasury the same amount in proportion to his shares that the would-be borrower paid, thus increasing the amount of funds to be allotted to homebuilders and making it easier and speedier for them to get their homes. The investing or depositing member has always been an important factor in these associations, and in our crowded industrial communities today the chief problem of many associations is to attract enough depositing members to supply the demand for loans. In order to attract depositing members certain privileges are allowed in the way of withdrawal of shares before they mature, but while the depositor is a member he pays regularly on his shares.

In the early associations it will be seen that as soon as the last man was provided with the funds to build his home the object of the club

had been accomplished and the association was ready to disband. In like manner, after the introduction of the depositing member, the association ran a certain course and then would wind up its affairs, the investors taking their shares in cash, while the borrowers had their mortgages released and their homes freed from debt. These were called terminating societies, because in a certain definite sense their affairs were terminated. It was often found, however, that after the original association was started others in the community wished to become members at a later date. Originally this could not be done, and the only recourse was to form a new association; but as this was cumbersome and expensive, it was not long before associations were formed which allowed members to join at stated intervals, these intervals being sometimes a year apart, sometimes six months, and sometimes three months, according to the number of new members that could be secured. These were called serial associations, and each group of members constituted a series. Each series was in reality a terminating association, having its loans matured, the borrowers having their mortgages canceled, and the investing members receiving the value of their shares in cash. The serial association had many advantages over the terminating society; it became more of a feature of the community, better methods of accounting were introduced, and its officers became more experienced and, consequently, more competent.

About the year 1870 in the city of Dayton, Ohio, there appeared a modification of the serial plan, which has since become known as the Dayton or permanent plan. In the serial association the man who wanted to join at any time between the regular dates for opening a series must either wait until the next series was opened or he must pay back dues from the time the last series was opened. This was not always convenient or advisable, and the permanent plan allowed a person to become a member at any time and take as many shares of stock as he would. Each member could thus mature his own shares independently of anybody else, and each borrower could likewise pay off his own debt in the same way. Fines and premiums were reduced; more liberal provisions for withdrawals were made and members were permitted to retire at any time, taking their share of the net profit with them. The liberality of this plan appealed to the general public, and it has superseded the terminating and the serial plans almost entirely in Ohio, and many of its features are being adopted in other states. It is still a battle royal whether the serial

or permanent plan is the better, and arguments on this point occur at practically every meeting of the United States League of Local Building and Loan Associations. It is worthy of note, however, that while many associations have changed from the serial to the permanent plan, the writer has yet to learn of one that has changed from the permanent to the serial.

In every association, whether terminating, serial, or permanent, at certain stated intervals the profits of the business are ascertained. In the older associations it was the aim to keep these profits in a common fund until the time for final dissolution of the society. Any losses that occurred were paid out of these accumulated profits, and the payments of the members were continued until the amount of such losses was made up to the society again. At a later date, and largely for the purpose of accommodating withdrawing members, it became the custom to apportion the profits more or less fully among the members as a dividend. At first these dividends were usually declared annually, but now semiannual dividends have become the almost universal rule. In the terminating societies, however, a part of the profits is still withheld until final dissolution in order to safeguard against loss. Likewise in most serial associations the profits of each series are partly withheld until the series mature. In the permanent association, however, the society is secured against loss by means of a reserve fund, which is now obligatory in many states. Each association is required to lay aside a certain percentage of its net profits each year for this fund and the fund can be used for the payment of losses only. In this particular the associations are in line with the Mutual Savings Banks of New England and the East.

These associations form an important factor in the savings business of the country. They not only afford opportunity for the saving of small sums at regular intervals, but they enforce the saving of such sums as far as it is possible to do so. From a very modest beginning some eighty years ago their business has increased until now, according to the best information obtainable, their combined resources aggregate $850,000,000. Pennsylvania leads the list, both in the number of associations and in the amount of resources, with Ohio as a close second. Wherever there is a large class of wage-earners there is a good field for these institutions. An investigation of certain typical associations by the Department of Labor at Washington, some eight

years ago, developed the fact that fully 70 per cent of the membership is made up of working people. Hence we find them not only in the steel and iron mills of Pennsylvania, but also in the factory towns of Massachusetts, the cotton-spinning districts of the South, and the growing cities of the Great Northwest. In enabling people to provide homes for themselves these associations are rendering a service at once unique and invaluable. There is nothing that gives the average man or woman quite so much satisfaction as the possession of a few square rods of Mother Earth.

Wage-earning people are accustomed to pay rent, and it is not difficult for them to add a few dollars to the monthly rental and apply it on a home. Loans are made by the associations up to about twothirds of the value of the property loaned upon, and such loans are usually repayable at the rate of one dollar per month on each hundred dollars borrowed, with the privilege to the borrower to pay more at any time. If the borrower should sell his property, the association will, as a rule, accept payment of the balance due and release the mortgage. If he does not sell, his regular payments will in time extinguish the debt. Paying a debt in instalments is like attacking an army in detail; you conquer one instalment after another until the whole debt is annihilated. On account of the great amount of clerical work involved, this form of loan has never found favor with banks and trust companies, but it does find favor with the wageearning public. As a rule, the borrowers pay more than the required payments. Our own association makes a loan which allows the borrower ten years' time in which to pay his mortgage off, but the average duration of these loans with us is but little more than five years.

The Building and Loan Associations are managed by the members themselves, who convene at their annual meeting, choose their Board of Directors, listen to reports of the officers, and amend their own regulations when necessary. In this way a certain amount of business training is had which is not without its value. It has long been recognized by social workers that one cannot directly help people upward. All that can be done in such cases is to provide a way in which people can help themselves. The writer knows of no agency that furnishes to wage-earning people an opportunity for self-help equal to that afforded by a well-regulated Building and Loan Association.

176. LOCAL VERSUS NATIONAL ASSOCIATIONS1

BY SEYMOUR DEXTER

There are two kinds of building and loan associations-the local and the national. There is a wide difference in their character, however, and the advantages lie altogether with the former. While the national associations have assumed the name of the true building and loan association, they are no more entitled to use it as descriptive of their business than a western farm mortgage and trust company or an investment and loan company. The name assumed is a misnomer except the word "national." While they have assumed some of the methods of the true building and loan associations, as a whole their manner of doing business is entirely unlike them; they have, as a rule, eliminated from their scheme the modes and principles by which the success of the building and loan association has been secured.

The true building and loan association is a comparatively small affair; its operations are confined to the place where located, or the immediate vicinity; most of its officers serve without pay; each shareholder can know what the association is doing from month to month, and upon what securities his money is being invested. The shareholders can attend the annual meetings and vote in person for the officers of their choice. There are no official places with salaries of sufficient amount to entice the scheming and crafty, and no paid solicitors for business to mislead the ignorant and unwary.

These elements of safety are eliminated in the national; the motive for their organization is to furnish business and gain to those who organize and conduct them. No capital is required to be invested in the business. Their operations spread in time over many states; the shareholders cannot know what the association is doing or how or where their money is being invested. They cannot attend the annual meetings and vote in person for officers; they simply intrust their money to strangers to handle on a promise that it will be returned at some time in the future with large interest.

Some of these associations will fall into the control of honest and capable men and be successful, but the greatest number will sooner or later come to failure and loss to the shareholders.

Whenever so fine a field of operations presents itself to the scheming and dishonest as the present system of the national building and

Adapted from an address, quoted in Bureau of Labor Bulletin IX, pp. 1499-1500.