Credit Union History Part I - The Back Story

 I recently taught a course in Financial Intermediaries.  For the first time ever, I decided to focus large components of the course on the credit union movement.  I am currently posting the historical components of that development in reverse order so that if you come upon this later, you just need to go straight through my posts to get them in order.  I will edit these posts to remove this introductory comments so that you only read it at the top of my posts.  

I have found that credit union executives do not know the foundations of the movement of which they are a part.  The board members don't know the legacy that is there.  I hope that posting them here will help rebuild the great legacy that is part of the cooperative lending movement.  I find that most credit union leaders know that the oldest ancestral institutions began in Germany.  Few knew that what became the US credit union movement moved from Germany, through Italy and Canada, before making its way to the United States.  And important details about the objectives of each incarnation are surprisingly missing.

In this retelling - done both in writing and video - I hope to convey details, and philosophical imperatives.  Many founders of cooperative lending institutions pushed boundaries at great personal risk.  They were all great supporters of democratic institutions.  The unique governance system of the US credit union movement is due to the insistence by the founders of cooperative lending that each member have a vote - regardless of how much money the member has at risk in the institution.  Cooperative lending institutions have always been about:

1. The democratization of financial services:  Access to certain financial goods or services have always been easier for wealthier people than for the "masses".  There are economic reason for that.  But cooperative lenders have always found economic work-arounds to bring needed financial goods and services to all people.
2. The support of democracies:  Every founder we will cover was personally involved in improving the government of the countries in which they lived.  In Prussia, the founder of the Volksbank spent his entire life in the legislature of Prussia, fighting for democratic institutions.  The founder of Italian cooperative lending institutions was also a member of the legislature, but also served as finance minister and even prime minister.  Both the Prussian and Italian founders were not always popular with the monarchial power that felt threatened by their moves.  The Canadian founder worked for many years in politics, and supported the Canadian parliament as the official stenographer.  In the US, there were several supporters who got credit unions started, all had long histories of supporting and renewing democratic institutions.  And in all cases the governance structure of each of these organizations is unique - reflecting the democratic ideals of their founders.
3. The dedication to building self-reliant local communities:  Each cooperative lending institution was founded by people who believed in building cities, towns, villages, and religious communities.  Communities supported the lending institutions, and the financial institutions in turn were dedicated to building the communities.  In building communities, these founders did not mean simply giving donations to communities, but investing in making people within the communities self-reliant.  Prussian cooperative lending institutions were founded at a time when people had become dependent on aristocrats who would make decisions for others.  But even in the United States at the turn of the twentieth century, many people just relied too much upon the rich or associated with special interests.  Cooperative lenders were aimed at relying on one another to become truly independent, and then paying that indepence forward.

In order to really appreciate the revolutionary thought process that was cooperative lending, we need to transport ourselves to a different world.  A world where absolute power was wielded by kings - but many knew it shouldn't be.  A world where people were born into a caste, and were expected to stay in the station in which they were born - despite what gifts they may have been born with.  A world where only one person had a real voice - and that person may or may not have wanted to have that say.

In this first video, I begin to expound the necessary history and thought process of people living in Prussia where our story will begin.  Most people can understand the society in which they currently live, but don't fully understand any other society.  In this first set of videos, we will try to transport you through the relevant philosophies that will allow you to understand the founders of cooperative lending institutions.  The first video runs about 16 minutes.

 For centuries, Europe was really a hodge-podge of small fiefdoms.  Over time, these fiefdoms would merge and become bigger.  As philosophies evolved, scientific administration technics allowed larger and larger realms to evolve.  However, in most cases, the powerful became more powerful.  But monarchies rarely allowed the smartest people to administer the affairs of state.   One of the weakest monarchies in Europe was in England.  However, the economy of England was growing more and more powerful.  Perhaps monarchies were not the most efficient way of administering a country.  Video #2 runs for about 13 minutes.

The British limits to monarchs has now only grown, and their economy has also exploded.  By contrast, the power of the Prussian monarch has grown more absolute, and their economy has plateaued.  Demands for democracy have turned from philosophical to violent.  Monarchs throughout Europe began to worry about losing their lives.  A short-lived democracy was set up in France - just next door to Prussia.  The next video runs for about 12.5 minutes.

France at the time of Napoleon had democratic components.  So during the French occupation, Prussians got used to more freedoms.  But the emperor was not German - he was French.  The push was to obtain freedom, but Germans didn't want an absolute German monarch again.  Even though they wanted to go home, they couldn't ever go back home again - at least not the way it had been.  It was during this ambivalent time that Hermann Schulze - the founder of cooperative lending movement in Prussia - was born to a well educated technocrat in a part of Saxony that would soon be annexed by Prussia.  The final chapter of background runs for yet another 10 minutes.

Prussia won back their independence from France, but they could never really go back to an absolute monarchy (although they would try until 1918).  Many educated Germans would fight for democracy - not with guns or swords, but with arguments, with writing, and with artistic expression.  Hermann Schulze would be established in the family business - law.  He would use the law and academic writings to advocate for more liberal, democratic solutions to the problems he observed in his community.  His dominion was not in an ivory tower - but on the ground, in a community.  His solutions had to be applicable to the real world.  To continue the story, go "back" to my last post.